If Prices and Wages Are Inflexible Downward, a Decrease in Aggregate

question 64

Multiple Choice

If prices and wages are inflexible downward, a decrease in aggregate demand will

• A) reduce the price level but not real output.
• B) increase short-run aggregate supply.
• C) decrease short-run aggregate supply.
• D) reduce real output but not the price level.

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Definitions:

Expenditures

The act of spending funds or money on goods, services, or activities, either for immediate needs or for future benefits.

Product Cycle

The stages through which a product goes from its initial concept phase to development, market introduction, growth, maturity, and eventual decline.

Severe Competition

A market situation where businesses intensely compete with each other for market share and customer loyalty, leading to aggressive pricing strategies and marketing.