In the short run, a decrease in the general price level will cause business profits to rise and, hence, the total quantity of output to increase.

Question

Quizplus · Accepted Answer

A decrease in the general price level may lead to lower revenues for businesses, especially if they cannot adjust their costs quickly enough. This could lead to lower profits or even losses in the short run, and may lead to a decrease in the total quantity of output if firms reduce their production. In the long run, however, lower prices may stimulate demand and increase output if firms can adjust their costs and find new ways to produce at lower prices.

In the Short Run, a Decrease in the General Price