Following an unexpected decline in aggregate demand, once production cutbacks start offsetting rising inventory levels:
A)the aggregate demand curve will shift to the right.
B)the aggregate supply curve will shift to the left.
C)the economy will return to its natural rate of unemployment.
D)the short-run Phillips curve will shift to the right.
E)the economy will face both higher inflation and a higher unemployment rate.

Question

Quizplus · Accepted Answer

Once production cutbacks occur to offset rising inventory levels, the economy will adjust, and over time, it will return to its natural rate of unemployment as prices and wages adjust in the long run.

Following an Unexpected Decline in Aggregate Demand, Once Production Cutbacks