If the economy is near full capacity, the effect of a negative aggregate demand shock is to
A) increase the level of aggregate demand.
B) cause the price level to fall.
C) increase the firm's cost of producing at every level of output.
D) increase the level of employment.

Question

Quizplus · Accepted Answer

When the economy is near full capacity and experiences a negative aggregate demand shock, it typically leads to a decrease in the price level as demand for goods and services falls, causing downward pressure on prices.

If the Economy Is near Full Capacity, the Effect of a Negative