If aggregate demand shifts to the left by $400 billion and aggregate supply is upward-sloping,then real output will decrease by
A)$400 billion,and the price level will not change.
B)Less than $400 billion,and the price level will fall.
C)$400 billion,and the price level will fall.
D)More than $400 billion,and the price level will not change.

Question

Quizplus · Accepted Answer

When aggregate demand shifts to the left, it indicates a decrease in the total demand for goods and services at every price level. With an upward-sloping aggregate supply curve, this decrease in demand leads to a fall in both the price level and real output. However, because the supply curve is upward-sloping (indicating that prices can adjust), the decrease in real output will be less than the initial shift in demand due to some offsetting price level decrease, which can mitigate the reduction in quantity demanded.

If Aggregate Demand Shifts to the Left by $400 Billion