suppose the economy is initially in long - run equilibrium. then suppose there is a reduction in investment…

suppose the economy is initially in long - run equilibrium. then suppose there is a reduction in investment spending. according to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?\n a. prices rise and output rises.\n b. prices rise and output falls.\n c. prices fall and output falls.\n d. prices fall and output rises.

suppose the economy is initially in long - run equilibrium. then suppose there is a reduction in investment spending. according to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?\n a. prices rise and output rises.\n b. prices rise and output falls.\n c. prices fall and output falls.\n d. prices fall and output rises.

Answer

Brief Explanations:

Reduction in investment spending decreases aggregate demand. In the short - run aggregate supply and aggregate demand model, a left - ward shift in aggregate demand leads to a lower equilibrium price level and lower equilibrium output.

Answer:

C. Prices fall and output falls.