Multiple Choice
Suppose that prices are sticky in the short-run. Which of the following best describes the economy's response to a negative demand shock?
A) Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will increase.
B) Firms' inventories will decrease, causing them to increase production. Ultimately, real GDP will increase and unemployment will decrease.
C) Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will increase and unemployment will increase.
D) Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will decrease.
Correct Answer:
Verified
Correct Answer:
Verified
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