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    Unemployment can be caused by a decrease of aggregate demand

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    Explain: "Unemployment can be caused by a decrease of aggregate demand or a decrease of aggregate supply". In each case, specify the price-level outcomes.
    (include a example relating concepts in questions to every - day event)

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    When either Aggregate Demand (AD) or Aggregate Supply (AS) decreases, output (Y) decreases as a result.

    When output decreases, less is being produced so the firms don't hire as many workers (or may cut jobs) since they are not needed, which causes unemployment to rise.

    More specifically. though, there ...

    Solution Summary

    Solution clearly explains how decrease of aggregate demand causes Unemployment