-Suppose the economy is at point B. If a recession in another country decreases exports, to what point might the economy move in the short run?
A) It stays at point B.
B) It shifts to a point such as A.
C) It shifts to a point such as C.
D) None of the above answers are correct because it is the SAS curve that shifts, not the AD curve.

Question

-Suppose the economy is at point B. If a recession in another country decreases exports, to what point might the economy move in the short run?
A) It stays at point B. 
B) It shifts to a point such as A. 
C) It shifts to a point such as C. 
D) None of the above answers are correct because it is the SAS curve that shifts, not the AD curve.

Quizplus · Accepted Answer

A decrease in exports due to a recession in another country would lead to a decrease in aggregate demand in the domestic economy. This would cause the economy to move from a higher level of output and price (point B) to a lower level of output and potentially lower price level (point A), reflecting a contraction or a move towards a recessionary gap.

-Suppose the Economy Is at Point B