Starting from long-run equilibrium,what impact will a decrease in aggregate demand have?
A)It will shift the LRAS curve to the right.
B)It will result in a higher price level.
C)It will decrease unemployment.
D)It will cause a recessionary gap.

Question

Quizplus · Accepted Answer

A decrease in aggregate demand will cause a leftward shift of the AD curve, leading to a decrease in output and employment. In the long run, this will cause firms to adjust their prices and wages, leading to a leftward shift in the SRAS curve. The eventual outcome will be a new equilibrium at a lower level of output and a higher price level, which corresponds to a recessionary gap. There will be no impact on the LRAS curve, which is determined by factors such as technology, capital, and labor.

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