If Prices Are Inflexible, Then a Negative Demand Shock Will

question 106

Multiple Choice

If prices are inflexible, then a negative demand shock will lead to:

• A) A short-run increase in real GDP
• B) A short-run decrease in real GDP
• C) A short-run decrease in prices
• D) No change in real GDP in the short run

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Definitions:

Italian Shoes

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GDP Deflator

An economic metric that converts the output of an economy measured at current prices into constant-dollar terms to remove the effects of inflation.

Consumer Price Index

A methodology for assessing the weighted average pricing of consumer commodities and services, including healthcare, food, and transit.

Imported Oil

Oil brought into a country from another, affecting its balance of trade and energy policies.