Assume the economy is hit by a shock that decreases aggregate demand.When the economy has finally adjusted to full employment,
A) only the level of real GDP will be affected.
B) there will be no changes to either the price level or real GDP.
C) only the price level will be affected.
D) both real GDP and the price level will be affected.
E) aggregate supply will not have changed.

Question

Quizplus · Accepted Answer

In the long run, the economy adjusts back to full employment, so real GDP returns to its potential level. However, the price level will be lower due to the initial decrease in aggregate demand.

Assume the Economy Is Hit by a Shock That Decreases