In the short run, a decline in aggregate demand would be associated with:
A)an inward shift of the Phillips curve.
B)an outward shift of the Phillips curve.
C)a movement up along the Phillips curve.
D)a movement down along the Phillips curve.
E)no change along the Phillips curve.

Question

Quizplus · Accepted Answer

A decline in aggregate demand would lead to a decrease in output and employment levels, resulting in a movement down along the Phillips curve. This is because lower levels of output and employment are associated with lower inflation rates (assuming a downward sloping Phillips curve).

In the Short Run, a Decline in Aggregate Demand Would