Question

The 2008-2009 recession must have been a result of ________ because otherwise the combination of the ________ cannot be explained.

Question 29 options:

	a decrease in AD and an increase in AS; fall in the price level and the decrease in real GDP
	a decrease in AD and an increase in AS; rise in the price level and the decrease in real GDP
	an increase in AD and AS; rise in the price level and the decrease in real GDP
	a decrease in AD and AS; rise in the price level and the decrease in real GDP
	a decrease in AD and AS; decrease in the price level and the decrease in real GDP

When potential GDP increases,

Question 3 options:

	the AS curve shifts rightward.
	there is a movement up along the AS curve.
	the AS curve shifts leftward.
	there is a movement down along the AS curve.
	there is neither a movement along nor a shift in the AS curve

If potential GDP increases,

Question 5 options:

	aggregate supply does not change.
	the quantity of aggregate supply decreases.
	aggregate supply increases.
	the price level rises.
	the money wage rate must have fallen.

Answer 1

Question 29

Answer is (a) a decrease in AD and an increase in AS; fall in the price level and the decrease in real GDP

During recession, there is always greater supply than demand because the people stop buying goods. The demand falls. This makes the price level to fall because there is more supply to less demand. This is clear by basic assumptions of demand and supply.

The economy slows down during recession. Unemployment increases, output falls and many other things contribute to the fall for real GDP.

So, the statement would go like-

The 2008-2009 recession must have been a result of a decrease in AD and an increase in AS because otherwise the combination of the fall in the price level and the decrease in real GDP cannot be explained.

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