Starting from long-run equilibrium,what will a decrease in aggregate demand cause?
A)a recessionary gap in the short run and the long run
B)an inflationary gap in the short run and the long run
C)a recessionary gap in the short run
D)an inflationary gap in the short run

Question

Quizplus · Accepted Answer

A decrease in aggregate demand will lead to a short run recessionary gap as firms will reduce production and employment in response to lower demand. In the long run, the economy will adjust back to the initial equilibrium level of output through lower prices and wages, resulting in no gaps in the long run.

Starting from Long-Run Equilibrium,what Will a Decrease in Aggregate Demand