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Question
In the above figure, start with the economy in equilibrium at point A. Then an unanticipated reduction in aggregate demand triggers a shift from AD 1 to AD2. In the short run, this would cause
A) the price level to fall from P1 to P2, real Gross Domestic Product (GDP) to fall from Y1 to Y2, and the rate of unemployment to increase.
B) the price level to move from P1 to P2, but real Gross Domestic Product (GDP) would stay at Y1.
C) the price level to fall by some amount less than P1 but greater than P2, and the rate of unemployment would decrease.
D) no change in either the price level or real Gross Domestic Product (GDP), but a decrease in unemployment.
Answer
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