When the economy enters recession due to a decline in demand, what will happen to the price level?

 

Assume there is a decrease in the demand for goods and services, which leads to a decrease in the real GDP and eventually the economy into recession.

a) When the economy enters recession due to a decline in demand, what will happen to the price level?

b) Assume there is no government intervention. What will ensure that the economy still eventually gets back to the natural rate of output (real GDP)?

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