Given Your Knowledge of How Aggregate Supply Changes from the Very

Multiple Choice

Given your knowledge of how aggregate supply changes from the very short run to the long run, what is the medium run impact of a decrease in aggregate demand?

A) All prices adjust, and the economy returns to long-run potential.
B) There is a slow fall in prices as the short-run aggregate supply begins to have a positive slope, and the initial decline in output will moderate.
C) There is a sharp fall in prices in the economy as business hurriedly lower prices to try to boost sales.
D) There is a recession as output falls sharply, and prices will not have had time to adjust.