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.
A.
Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will increase.
You might also like to view...
If intended investment is $500 billion, and actual investment is $620 billion, then we know that
a. consumption is $620 billion b. unwanted inventory is $620 billion c. consumption is $120 billion d. unwanted inventory is $120 billion e. saving is $500 billion
How do the fluctuations in the exchange rate influence the domestic price level?