Final answer:
In the short run, the fear of price wars is a likely contributor to the downward inflexibility of prices, as it may prevent businesses from lowering prices despite a decrease in aggregate demand. Therefore correct option is a
Step-by-step explanation:
When aggregate demand decreases and real output falls, but the price level remains the same, one factor that likely contributes to this downward price inflexibility is the fear of price wars. The coordination argument suggests that for wages and prices to adjust downward, perfect information about the level of lower compensation acceptable to other laborers and market participants is required. This is often not the case, resulting in price stickiness. Option (a), fear of price wars, is the correct answer as businesses may avoid lowering prices even with decreased demand to prevent a spiral of continuous price cutting that can hurt profits severely in the short run.