The short-run and long-run aggregate supply curves remain stable, and a decrease in aggregate demand occurs. What is the result in the short run?
A) An increase in the price level and real GDP will occur.
B) A period of expansion and a rise in the unemployment rate could occur.
C) A period of recession and a rise in the unemployment rate could occur.
D) The price level will fall but real GDP will remain the same.

Question

Quizplus · Accepted Answer

In the short run, a decrease in aggregate demand will result in a period of recession and a rise in the unemployment rate. This is because firms will initially react to the lower demand by reducing output and laying off workers, leading to higher unemployment. However, the stable short-run aggregate supply curve means that prices will not adjust immediately, leading to a period of recession.

The Short-Run and Long-Run Aggregate Supply Curves Remain Stable, and a Decrease