In the Long Run, How Will a Decrease in Aggregate

question 64

Multiple Choice

In the long run, how will a decrease in aggregate demand affect price and output?  

• A) The price level will decrease, and the output level will decrease. 
• B) The price level will increase, and the output level will increase. 
• C) The price level will decrease, and the output level will increase. 
• D) The price level will decrease, and the output level will remain the same.

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Definitions:

Value of Marginal Product

The additional revenue a firm generates from employing one more unit of input, such as labor, assuming all other inputs are constant.

Demand Decreases

A situation where there is a fall in the quantity of a product that consumers are willing and able to purchase at a given price.

Perfectly Competitive

A market structure characterized by a large number of buyers and sellers, homogenous products, no barriers to entry or exit, and perfect information among market participants.

Normal Good

A good for which demand increases when consumer income rises, showing a positive relationship between income and demand.