In the long run, any decreases in aggregate demand
A) decrease the level of prices and output.
B) decrease the level of prices.
C) decrease the level of output.
D) have no effect on either the level of prices or of output.

Question

Quizplus · Accepted Answer

In the long run, decreases in aggregate demand primarily decrease the level of prices. According to classical economic theory, in the long run, the economy is able to adjust to changes in aggregate demand, and output returns to its natural level, but prices adjust to reflect the change in demand.

In the Long Run, Any Decreases in Aggregate Demand