According to Samuelson and Solow, when aggregate demand is low, how are unemployment, wages, and prices affected?
A) Unemployment is high, so there is upward pressure on wages and prices.
B) Unemployment is high, so there is downward pressure on wages and prices.
C) Unemployment is low, so there is upward pressure on wages and prices.
D) Unemployment is low, so there is downward pressure on wages and prices.

Question

Quizplus · Accepted Answer

When aggregate demand is low, there is a decrease in the demand for goods and services. This results in a decrease in production, which leads to higher levels of unemployment. With higher unemployment, there is downward pressure on wages and prices as workers are competing for fewer job opportunities. Therefore, choice B is the correct answer.

According to Samuelson and Solow, When Aggregate Demand Is Low