The Great Recession illustrated the situation where a negative demand shock occurred and
A) prices adjusted but the output level was inﬂexible.
B) the economy's overall price level was very ﬂexible.
C) the economy's overall price level was "sticky."
D) prices and production were both "sticky," or inﬂexible.

Question

Quizplus · Accepted Answer

The statement "the economy's overall price level was 'sticky'" refers to the fact that prices were resistant to change during the Great Recession, even though demand had fallen. This means that price adjustment was limited and that a drop in demand resulted in lower output levels rather than lower prices.

The Great Recession Illustrated the Situation Where a Negative Demand