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When aggregate supply exceeds aggregate demand
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- unemployment falls
- prices rise
- inventories accumulate
- unemployment develops
- unemployment falls
Correct Option: C
Deflation sets in when aggregate supply exceeds aggregate demand. Recession sets in. This will lead to a buildup in stocks (inventories) and this sends a signal to producers either to cut prices (to stimulate an increase in demand) or to reduce output so as to reduce the buildup of excess stocks. Either way there is a tendency for output to move closer to the current level of demand.