A decrease in aggregate demand causes a decrease in ________ only in the short run, but causes a decrease in ________ in both the short run and the long run.Question 4Answera.real GDP; the price levelb.the price level; the price levelc.the price level; real GDPd.real GDP; real GDP
Question
A decrease in aggregate demand causes a decrease in ________ only in the short run, but causes a decrease in ________ in both the short run and the long run.Question 4Answera.real GDP; the price levelb.the price level; the price levelc.the price level; real GDPd.real GDP; real GDP
Solution
The correct answer is a. real GDP; the price level.
Here's why:
In the short run, a decrease in aggregate demand causes a decrease in real GDP because when demand for goods and services decreases, businesses typically respond by slowing down production, which leads to a decrease in real GDP.
In the long run, however, businesses adjust to the decrease in demand by lowering prices to stimulate demand, which leads to a decrease in the price level. This happens in both the short run and the long run.
So, a decrease in aggregate demand causes a decrease in real GDP in the short run and a decrease in the price level in both the short run and the long run.
Similar Questions
6. Suppose Canada's economy is in a long-run equilibrium with real GDP equal to potential output.Now suppose there is a decrease in the Canadian price of all imported raw materials. In the shortrun, ________. In the long run, ________.A) real GDP and the price level both fall; real GDP is below its original level with a lower price levelB) real GDP and the price level both rise; real GDP is above its original level with a higher price levelC) real GDP and the price level both rise; real GDP returns to its original level with a higher price levelD) real GDP rises and the price level falls; real GDP and the price level return to their original levelsE) real GDP falls and the price level rises; real GDP is below its original level with a higher price
A decrease in the price level results in a(n) ________ in the quantity of real GDP demanded because a lower price level ________ consumption, investment, and net exports.Question 9Answera.decrease; decreasesb.decrease; increasesc.increase; increasesd.increase; decreases
There has been a decrease in investment. As a result, real GDP will ________ in the short run, and ________ in the long run.Question 6Answera.decrease; increase to its initial levelb.increase; increases furtherc.decrease; decrease furtherd.increase; decrease to its initial value
Multiple Choice QuestionWhich of the following statements about short-run aggregate supply is the most accurate?Multiple choice question.It is not affected in any manner by the price level.It reflects how much real GDP will be produced given various economic growth rates.It shows how much real GDP suppliers are willing and able to produce at different price levels.It is downward sloping because of the interest rate effect.
A change in _____ would cause a shift of the short-run aggregate supply curve.Choose one answer from the options below.the quantity of real output supplied the price levelcommodity pricesaggregate demand
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