According to the Theory of Economic Fluctuations, Which of the Following

Multiple Choice

According to the theory of economic fluctuations, which of the following explains the relationship between aggregate demand and employment during a recession?

A) A fall in output causes potential GDP to increase.This causes employment to decline.
B) A fall in real GDP causes aggregate demand to fall.As a result, firms lay off workers.
C) A fall in aggregate demand causes real GDP to fall as firms adjust their production.Workers are laid off as a result.
D) A fall in aggregate demand causes potential GDP to fall.The resulting decline in output causes employment to fall.
E) Workers decide they would rather have more leisure time and decide not to work as much.As a result, there is less labor employed and less is produced.