If aggregate demand decreases, and, as a result, real output and employment decline but the price level remains unchanged, it is most likely that

Question

Multiple Choice
the money supply has declined.
the price level is inflexible downward and a recession has occurred.
cost-push inflation has occurred.
productivity has declined.

Answer 1

If aggregate demand decreases and results in a decline in real output and employment while the price level remains unchanged, it is most likely that:

the price level is inflexible downward and a recession has occurred.

This situation suggests that prices are sticky and cannot easily adjust downward, which can lead to a recession when demand decreases.