A temporary decrease in aggregate demand:
A) raises the inflation rate and growth rate in the long run.
B) reduces the inflation rate and growth rate in the long run.
C) raises the inflation rate,but reduces the growth rate in the long run.
D) makes neither the inflation rate nor the growth rate change in the long run.

Question

Quizplus · Accepted Answer

A temporary decrease in aggregate demand typically affects the economy in the short run by reducing inflation and slowing growth. However, in the long run, economies tend to return to their potential output, meaning neither the inflation rate nor the growth rate is permanently affected.

A Temporary Decrease in Aggregate Demand