Question

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

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.