When demand shocks lead to recessions, it is mainly due to
A) price inﬂexibility.
B) the inability of government policy to affect demand.
C) unexpected changes in the supply of goods and services.
D) government regulations that prevent ﬁrms from adjusting output in response to the shocks.

Question

Quizplus · Accepted Answer

When there is a demand shock, such as a decrease in consumer spending, firms may be reluctant to lower prices, leading to a decrease in demand and a recession. This is known as price inelasticity.

When Demand Shocks Lead to Recessions, It Is Mainly Due