When a decrease in aggregate demand (AD) causes a recession, one can usually expect the price...
When a decrease in aggregate demand (AD) causes a recession, one can usually expect the price level in the economy to:
A) Remain stable, because prices are downward sticky
B)Fall, because the AS is increasing in the short run
C) Rise, because the AS is vertical in the long run
D) Fall in the short run, and rise in the long run
Homework Answers
Decrease in AD causes a recessionary gap . Both price level and real GDP falls in the economy during recession . It will not rise in long run if left to auto-correction . Price level again rises in long run when an expansionary policy is implemented . In short run , SRAS increases due to fall in prices of input .
B)Fall, because the AS is increasing in the short run
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the expected price level of 120 and the natural level of output of
$600 billion. Suppose a sudden and severe contraction in the
housing market reduces the value of homes and causes consumers to
spend less.Shift the short-run aggregate supply (AS) curve or the aggregate
demand (AD) curve to show the short-run impact of
the housing market slump.In the short run, the decrease in consumption spending
associated with the housing...
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