Question

With an aggregate supply function that is continually positively sloped (LRAS), a reduction in aggregate demand leads to: Group of answer choices Falling prices cost-push interest rate Perpetual growth Rising prices Falling Employment

Answer 1

Answer: Falling prices

Step-by-step explanation:

When Aggregate demand reduces, the Aggregate demand curve will have to shift leftward to depict this and in doing so, it would intersect with the Long Run Aggregate Supply curve at a lower price level thereby leading to a fall in prices.

Aggregate demand reducing means that there is less money being spent in the economy and should this be the case, the economy is going to contract and unless the Aggregate demand was above potential GDP then this is not ideal.