Final answer:
If aggregate demand decreases by a certain unit, the market equilibrium will shift to a lower quantity and generally, a lower price level. Therefore, the answer is that both the price and quantity demanded will decrease.
Step-by-step explanation:
When aggregate demand falls by 5 units at each price level and the economy enters a recession, this would lead to a decrease in the overall spending in the economy. Equilibrium in a market occurs where aggregate demand (AD) equals aggregate supply (AS). If aggregate demand decreases without a corresponding change in aggregate supply, the new equilibrium will occur at a lower quantity of output and, generally, at a lower price level. Thus, the correct answer to the likely effect on the market equilibrium is C) Price will decrease; quantity demanded will decrease.
For a decrease in demand in the product market or labor market, the equilibrium price will decrease and the equilibrium quantity will also decrease. In the event of a recession, if demand falls, companies may reduce output and cut back on hiring or lay off employees, which results in a reduction of both price and quantity.