If prices and wages are flexible, a recession arising from a decrease in aggregate demand will:
A)decrease the price level.
B)increase the price level.
C)increase the interest rate.
D)increase net exports.

Question

Quizplus · Accepted Answer

In a recession when aggregate demand decreases, prices and wages are flexible which means they will adjust downwards in response to the decrease in demand. This will lead to a decrease in the price level.

If Prices and Wages Are Flexible, a Recession Arising from a Decrease