A negative shock to AD will cause the growth rate of real GDP to increase in:
A) the short run only.
B) the long run only.
C) both the short run and the long run.
D) neither the short run nor the long run.

Question

Quizplus · Accepted Answer

A negative shock to Aggregate Demand (AD) typically leads to a decrease in the growth rate of real GDP in the short run, as it implies a reduction in the total demand for goods and services in an economy. In the long run, economies tend to adjust back to a natural level of output through price and wage adjustments, making the impact of a negative AD shock temporary rather than permanent.

A Negative Shock to AD Will Cause the Growth Rate