According to one application of the extended AD-AS model, a decrease in aggregate demand causes which of the following?

Question

Multiple choice question.

Budgetary surplus

Recession

Rising employment

Inflation

Answer 1

According to the extended AD-AS (Aggregate Demand-Aggregate Supply) model, a decrease in aggregate demand typically leads to a recession. This is because lower aggregate demand reduces overall economic activity, leading to decreased output and higher unemployment.

So, the correct answer is:

Recession