A decrease in aggregate demand will

Question

Quizplus · Accepted Answer

A decrease in aggregate demand will lead to lower output and higher unemployment in the short run, which means the economy moves to a lower point on the short-run Phillips curve. This is because firms will produce less and lay off workers, which reduces the pressure on wages and prices in the short run. However, in the long run, the Phillips curve will shift back to its original position, meaning that the decrease in aggregate demand will not cause inflation or a permanent reduction in unemployment.

A Decrease in Aggregate Demand Will