A decrease in aggregate demand will cause a decrease in which of the following, assuming all other factors remain constant?

• A. the long-run aggregate supply
• B. the potential output
• C. the natural rate of unemployment
• D. the equilibrium price level

Answer: (D)

Verified step by step guidance

1. Understand the components involved: Aggregate demand (AD) represents the total demand for goods and services in an economy at different price levels, while long-run aggregate supply (LRAS) reflects the economy's potential output, which is determined by factors like technology and resources, not by demand fluctuations.
2. Recall that a decrease in aggregate demand shifts the AD curve to the left, leading to a lower equilibrium price level and output in the short run, but it does not affect the LRAS curve, which is vertical and fixed at potential output.
3. Recognize that potential output and the natural rate of unemployment are determined by structural factors such as technology, labor force, and capital stock, and are not influenced by short-term changes in aggregate demand.
4. Conclude that a decrease in aggregate demand primarily causes a decrease in the equilibrium price level and output in the short run, but does not change the long-run aggregate supply, potential output, or natural rate of unemployment.
5. Summarize that the correct answer is the equilibrium price level because it directly responds to shifts in aggregate demand, while the other options remain constant assuming all other factors are unchanged.