When aggregate demand meets aggregate supply in the horizontal portion of the aggregate supply curve,
A)a decrease in demand will cause prices to rise but no change in output.
B)a decrease in demand will cause output to rise but no change in prices.
C)a decrease in demand will cause prices to fall but no change in output.
D)a decrease in demand will cause output to fall but no change in prices.

Question

Quizplus · Accepted Answer

In the horizontal portion of the aggregate supply curve, the economy is not at full capacity, meaning there is excess capacity or slack. A decrease in demand in this scenario would lead to a reduction in output as producers adjust to the lower demand, but prices remain stable due to the excess capacity.

When Aggregate Demand Meets Aggregate Supply in the Horizontal Portion