Question

Unemployment would increase and prices would decrease if

A. aggregate demand shifted left

B. aggregate demand shifted right

C. aggregate supply shifted left

D. aggregate supply shifted right

Answer 1

When Aggregate demand(AD) shifts to the left Real Output and price level both decreases. Decrease in Real output means lesser workers are hired and hence unemployment increases. Thus option (A) is the correct answer.

If AD shifts to the right Price level increases and hence option (B) is incorrect

If AS shifts to the left then Price level increases and hence again option (C) is incorrect

Finally If AS shifts to the right price level decreases and Real Output increases which results in more people gets hired and unemployment decreases Thus option (D) is also incorrect.

Hence, the correct answer is (A) aggregate demand shifted left