Question

Which of the following is a true statement?

a. A decline in aggregate demand will primarily affect real output and employment if prices are inflexible downward.
b. Firms and resource suppliers generally find it easier to reduce prices than to raise them.
c. An initial increase in aggregate demand may cause a further increase in aggregate demand because higher prices mean higher incomes.
d. As the price level increases, interest rates will rise and therefore consumption and investment spending will also rise.

Answer 1

Statement A is correct in this regard

Step-by-step explanation:

This statement is true that a downfall in aggregate or cumulative demand will primarily affect real output and employment if rates are inflexible downward because the inflexible downward prices means no profit for the manufactures which means no production and no production means no employment which simply means no money to the consumers and no demand from the consumers.

Thus this statement is correct from economic scenario. Thus the inflexible downward price is causing the whole production and demand cycle in the economy.