In the long run, a decrease in aggregate demand causes the price level to _______ and the long-run aggregate supply curve to _____________.
A) decrease; decrease
B) increase; increase
C) decrease; remain unchanged
D) increase; remain unchanged

Question

​ In the long run, a decrease in aggregate demand causes the price level to _______ and the long-run aggregate supply curve to _____________.
A) ​decrease; decrease
B) ​increase; increase
C) ​decrease; remain unchanged
D) ​increase; remain unchanged

Quizplus · Accepted Answer

In the long run, prices and wages are flexible, therefore a decrease in aggregate demand will lead to a decrease in overall prices. However, in the long run, the economy will adjust and the long-run aggregate supply curve will remain unchanged, as potential output is not affected by changes in aggregate demand.

​ in the Long Run, a Decrease in Aggregate Demand

in the Long Run, a Decrease in Aggregate Demand