If the economy adjusts through the automatic mechanism, then a decline in aggregate demand causes A. an expansion in the short run and an increase in the price level in the long run. B. a recession in the short run and a decline in the price level in the long run. C. a recession in the short run and an increase in the price level in the long run. D. an expansion in the short run and a decline in the price level in the long run.

Question

Business

Osvaldo Lang

21 July, 07:45

If the economy adjusts through the automatic mechanism, then a decline in aggregate demand causes A. an expansion in the short run and an increase in the price level in the long run. B. a recession in the short run and a decline in the price level in the long run. C. a recession in the short run and an increase in the price level in the long run. D. an expansion in the short run and a decline in the price level in the long run.

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Karsyn Savage · Answer 1

B

Explanation:

a recession in the short run and a decline in the price level in the long run

In the short run a decrease in aggregate demand causes recession due to a decrease in the profitability of the market. This causes the demand curve to shift left. The impact of this leftward shift is a short run recession that is brought about by low economic activities.

To stay in business, firms will have to lay off workers causing a rise in unemployment.

There is A decline in price level in the long run due to low aggregate demand.