A decrease in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.
A) an increase; no change
B) a decrease; no change
C) a decrease; a decrease
D) no change; an increase

Question

Quizplus · Accepted Answer

A decrease in aggregate demand leads to a decrease in real GDP as businesses produce less in response to lower demand. It also leads to a decrease in the price level (deflation) as businesses lower prices in an attempt to attract more customers.

A Decrease in Aggregate Demand Will Generate _____ in Real