As aggregate demand shifts left along the short-run aggregate supply curve,
A)inflation and unemployment are higher.
B)inflation is higher and unemployment is lower.
C)unemployment is higher and inflation is lower.
D)unemployment and inflation are lower.

Question

Quizplus · Accepted Answer

When aggregate demand shifts left along the short-run aggregate supply curve, the level of output and employment decreases, leading to higher unemployment. However, the decrease in demand also leads to lower prices, causing inflation to decrease. Therefore, unemployment is higher and inflation is lower, making choice C the correct answer.

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