Given your knowledge of how aggregate supply changes from the very short run to the long run, what is the medium run impact of a decrease in aggregate demand?
A)All prices adjust, and the economy returns to long-run potential.
B)There is a slow fall in prices as the short-run aggregate supply begins to have a positive slope, and the initial decline in output will moderate.
C)There is a sharp fall in prices in the economy as business hurriedly lower prices to try to boost sales.
D)There is a recession as output falls sharply, and prices will not have had time to adjust.

Question

Quizplus · Accepted Answer

In the medium run, the decrease in aggregate demand will cause a slow fall in prices as the short-run aggregate supply begins to have a positive slope. The initial decline in output will moderate, but the economy will not yet have returned to its long-run potential.

Given Your Knowledge of How Aggregate Supply Changes from the Very