The Great Recession of 2007-09 illustrated the situation where a negative demand shock occurred and:
A) Prices adjusted but the output level was inflexible
B) The economy's overall price level was very flexible
C) The economy's overall price level was "sticky"
D) Prices and production were both "sticky" or inflexible

Question

Quizplus · Accepted Answer

The Great Recession showed that the economy's overall price level was "sticky," meaning that prices were slow to adjust to changes in demand. This led to a situation where both prices and production were "sticky" or inflexible, as businesses were hesitant to lower prices in fear of harming their profitability, and were therefore slow to adjust their output levels.

The Great Recession of 2007-09 Illustrated the Situation Where a Negative