Question

According to one application of the extended AD-AS model, a decrease in aggregate demand causes which of the following?

A. Budgetary surplus
B. Recession
C. Inflation
D. Rising employment

Answer 1

A decrease in aggregate demand causes a recession.

Step-by-step explanation:

In the extended AD-AS (aggregate demand-aggregate supply) model, a decrease in aggregate demand results in a recession. When aggregate demand decreases, it causes a shift to the left in the aggregate demand curve, leading to a decline in output and employment. This is because businesses produce less and require fewer workers when demand for goods and services decreases.