Question

Answer the following:

a. A reduction in short-run aggregate demand likely causes a decline in real output, rather than the price level, because __________.
a. output is flexible downward.
b. output is inflexible downward.
c. prices are flexible downward.
d. prices are inflexible downward.

b. A full-strength multiplier applies to a decrease in aggregate demand when aggregate.
demand is vertical.
supply is horizontal.
demand is horizontal.
supply is vertical.

Answer 1

a. A reduction in short-run aggregate demand likely causes a decline in real output, rather than the price level, because __________.

• d. prices are inflexible downward.

A decrease in the aggregate demand curve will cause a decline in output rather than price because prices are sticky, that means that they do not change that often and producers are generally not willing to lower prices, instead they are more willing to lower output.

b. A full-strength multiplier applies to a decrease in aggregate demand when aggregate.

• supply is horizontal.

The aggregate supply curve becomes horizontal at the price level where producers are not willing to supply products any more.