When aggregate demand shifts left along the short-run aggregate supply curve,
A)unemployment and prices rise.
B)unemployment rises and prices fall.
C)unemployment falls and prices rise.
D)unemployment and prices fall.

Question

Quizplus · Accepted Answer

When aggregate demand shifts left along the short-run aggregate supply curve, there is a decrease in the demand for goods and services, leading to a decrease in production and ultimately leading firms to lay off workers. This increase in unemployment puts downward pressure on wages and prices, leading to a decrease in the general price level. Therefore, the correct option is unemployment rises and prices fall.

When Aggregate Demand Shifts Left Along the Short-Run Aggregate Supply