Consider an economy starting from a position of full employment. Which one of the following changes does not occur as a result of a decrease in aggregate demand?
A)The price level decreases.
B)The level of real GDP decreases in the short run.
C)A recessionary gap arises.
D)Factor prices decrease in the long run, shifting the short-run aggregate supply curve rightward.
E)The long-run aggregate supply curve shifts leftward to create the new long-run equilibrium.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve does not shift leftward due to a decrease in aggregate demand. Instead, it remains unchanged as it represents the economy's potential output, which is not affected by short-term fluctuations in demand.

Consider an Economy Starting from a Position of Full Employment