If prices of goods and services were free to quickly adjust, then
A) a negative demand shock would lead to increased unemployment in the short run.
B) a positive demand shock would lead to increased unemployment in the short run.
C) a negative demand shock would have no short-run effect on unemployment.
D) there would be no short-run demand shocks.

Question

Quizplus · Accepted Answer

If prices of goods and services were free to quickly adjust, a negative demand shock would not lead to increased unemployment in the short run because prices would adjust downward, maintaining the equilibrium between supply and demand without necessarily affecting employment levels.

If Prices of Goods and Services Were Free to Quickly