If an adverse shock reduces the level of aggregate demand, it is likely to lead to

Question

Quizplus · Accepted Answer

An adverse shock that reduces the level of aggregate demand will lead to lower consumer spending, less investment, and reduced economic activity. As a result, there will be a decrease in Real GDP. The decrease in demand will also lead to lower prices, resulting in a lower price level. Therefore, the correct answer is C - lower Real GDP ("RGDP")and a lower price level ("PI").

If an Adverse Shock Reduces the Level of Aggregate Demand