What happens to unemployment and real output during the self-correction process after a fall in aggregate demand?
A)Unemployment decreases and real output increases.
B)Unemployment decreases and real output decreases.
C)Unemployment increases and real output increases.
D)Unemployment increases and real output decreases.

Question

Quizplus · Accepted Answer

During the self-correction process after a fall in aggregate demand, prices and wages adjust downward, which leads to a decrease in the cost of production for firms. This, in turn, leads to an increase in the quantity of goods and services supplied (real output) and a decrease in unemployment as firms increase their hiring to meet the increased demand for their goods and services. Thus, option A, "Unemployment decreases and real output increases" is the correct answer.

What Happens to Unemployment and Real Output During the Self-Correction