When the aggregate demand curve shifts to the left, real GDP falls unless the aggregate supply curve is
A) horizontal.
B) upward-sloping.
C) vertical.
D) upward-sloping or vertical.

Question

Quizplus · Accepted Answer

If the aggregate demand curve shifts to the left and the aggregate supply curve is upward-sloping, there will be a decrease in real GDP and an increase in the price level. However, if the aggregate supply curve is vertical, the decrease in aggregate demand will only lead to a decrease in the price level, with no effect on real GDP. If the aggregate supply curve is horizontal, the decrease in aggregate demand will lead to a decrease in the price level, but an increase in real GDP. Therefore, the only choice that ensures a decrease in real GDP when the aggregate demand curve shifts to the left is when the aggregate supply curve is vertical.

When the Aggregate Demand Curve Shifts to the Left, Real