Assuming an upward-sloping aggregate supply curve,when aggregate demand decreases,unemployment
A)Decreases,and the price level decreases.
B)Increases,and the price level decreases.
C)Decreases,and the price level increases.
D)Increases,and the price level increases.

Question

Quizplus · Accepted Answer

When aggregate demand decreases, it leads to a decrease in real GDP and firms reduce their output. This leads to a decrease in the demand for labor and eventually results in an increase in unemployment. As firms are producing less, the supply of goods decreases, which leads to a decrease in the price level. Therefore, the correct answer is that unemployment increases and the price level decreases, which is option B.

Assuming an Upward-Sloping Aggregate Supply Curve,when Aggregate Demand Decreases,unemployment