When the aggregate demand curve shifts to the left against a vertical aggregate supply curve, the price level should __________ unless, as __________ argue, prices may have rigidities.
A) fall; Keynesians
B) fall; Monetarists
C) rise; Keynesians
D) rise; Monetarists

Question

Quizplus · Accepted Answer

According to Keynesians, prices may have rigidities in the short run, which means that they do not adjust immediately to changes in aggregate demand. Therefore, if the aggregate demand curve shifts to the left against a vertical aggregate supply curve, output will decrease and prices will fall. Monetarists, on the other hand, argue that prices are flexible in the short run and that the economy will always return to the equilibrium level of output and prices.

When the Aggregate Demand Curve Shifts to the Left Against