When demand shocks lead to recessions,it is mainly due to:
A) price inflexibility.
B) the inability of government policy to affect demand.
C) unexpected changes in the supply of goods and services.
D) government regulations that prevent firms from adjusting output in response to the shocks.

Question

Quizplus · Accepted Answer

When demand shocks occur, the equilibrium quantity demanded shifts, and firms are left with a surplus of goods or services. If these firms are unable or unwilling to lower prices to match the new level of demand, the result is a recession. This is known as price inflexibility, and it is a common reason why demand shocks can lead to economic downturns.

When Demand Shocks Lead to Recessions,it Is Mainly Due To