An unexpected negative demand shock would lead to a decrease in real GDP when prices are
inﬂexible.

Name: An unexpected negative demand shock would lead to a decrease in real GDP when prices are inﬂexible.
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Question

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If there is a negative demand shock, meaning that consumers are buying less goods and services, and prices are fixed or inelastic, firms would not be willing to lower prices to stimulate demand. This would result in a decrease in real GDP due to the decrease in aggregate demand.

An Unexpected Negative Demand Shock Would Lead to a Decrease