Question

If the economy is in a recession caused by lower aggregate demand, then in the absence of policy action, the price level will __________, output will __________, and employment will __________ in the long run.

Answer 1

Decrease, fall down, Decrease.

Step-by-step explanation:

If an economy is under recession then it will affect the economy's potential of production. Root cause of recession is the contraction in aggregate demand because when an economy falls then the consumer starts to cut back their spending which in turn will does not make any sense for a producer to keep generating output and hence output will fall. In the end when output fall then a firm will not require much employee as a result employment rate will also fall down.