5. 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 falls into recession.

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

(Enter response here.)

b. Assume there is no government intervention. Explain how the economy will eventually get back to the natural rate of output (real GDP)?

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6. Several macroeconomic variables decline during recessions. One of these variables is the GDP.

a. What other variables, besides real GDP, tend to decline during recessions? Given the definition of real GDP and its components, explain the expected declines in these economic variables.

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