Assume an economy is in a long-run equilibrium . Following a decrease in aggregate demand, which of the following is true in the short run? A The unemployment rate is equal to the natural rate of unemployment, and the rate of inflation is rising. B The unemployment rate is greater than the natural rate of unemployment,, and the rate of inflation is rising. C The unemployment rate is greater than the natural rate of unemployment,, and the rate of inflation is declining. D The unemployment rate is numer than the natural rate of

Question

Assume an economy is in a long-run equilibrium . Following a decrease in aggregate demand, which of the following is true in the short run? A The unemployment rate is equal to the natural rate of unemployment, and the rate of inflation is rising. B The unemployment rate is greater than the natural rate of unemployment,, and the rate of inflation is rising. C The unemployment rate is greater than the natural rate of unemployment,, and the rate of inflation is declining. D The unemployment rate is numer than the natural rate of

Answer 1

C) The unemployment rate is greater than the natural rate of unemployment, and the rate of inflation is declining.****

Answer 2

** In the short run, a decrease in aggregate demand leads to a reduction in output and employment levels. This causes the unemployment rate to rise above the natural rate of unemployment. Additionally, with lower demand in the economy, there is downward pressure on prices, leading to a decline in the rate of inflation.

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