In response to a decrease in output, the economy would revert to its original level of prices and output whether the decrease in output was caused by a decrease in aggregate demand or a decrease in aggregate supply.

Question

Quizplus · Accepted Answer

The economy would not necessarily revert to its original level of prices and output in response to a decrease in output caused by a decrease in aggregate demand or aggregate supply. The specific factors causing the decrease in output would need to be addressed in order to bring the economy back to its original level.

In Response to a Decrease in Output, the Economy Would