Suppose the Economy Is Initially Operating at Its Potential GDP

Multiple Choice

Suppose the economy is initially operating at its potential GDP. In the Keynesian view, which two of the following will occur after the economy is hit by an adverse aggregate demand shock?

A) Output and employment will increase, as will inflationary pressures
B) The economy will take a long time to revert to its former state
C) Both output and employment will fall
D) The economy will not be affected and will remain at its potential GDP