A decrease in aggregate demand in the economy will have what effect on macroeconomic equilibrium in the long run?
A)The price level will fall, and the level of GDP will be unaffected.
B)The price level will fall, and the level of GDP will fall.
C)The price level will rise, and the level of GDP will fall.
D)The price level will rise, and the level of GDP will be unaffected.
E)The price level will fall, and the long-run level of GDP will become more sensitive to changes in the price level.

Question

Quizplus · Accepted Answer

In the long run, a decrease in aggregate demand will lead to a lower price level, but the level of GDP will return to its natural rate, unaffected by changes in the price level, according to classical economic theory.

A Decrease in Aggregate Demand in the Economy Will Have