In the absence of monetary intervention following a negative shock to aggregate demand:
A) inflation,real growth,and nominal wage growth will all decrease.
B) inflation will decrease,but real growth and nominal wage growth will increase.
C) inflation will increase,real growth will decrease,and nominal wage growth will stay the same.
D) inflation and real growth will decrease,but nominal wage growth will stay the same.

Question

Quizplus · Accepted Answer

In the event of a negative shock to aggregate demand without monetary intervention, inflation, real growth, and nominal wage growth will all decrease. This is because a decrease in aggregate demand leads to lower prices (reduced inflation), reduced production (lower real growth), and lower demand for labor, which typically results in lower wages (decreased nominal wage growth).

In the Absence of Monetary Intervention Following a Negative Shock