Aggregate demand is the quantity of all goods demanded in the economy.<p>1.  Aggregate demand drops.  This shifts the curve to the left.  These leads to a drop in the price and quantity of goods exchanged in the economy.<p>2.  If firms are producing less goods they need less workers to produce these goods.<p>3.  If they need less workers, the demand for workers shifts to the left.<p>4.  This means the price and quantity of workers drops(wage cuts and increased unemployment)<p>Price and wage stickiness is one tool that New Keynesian economists use to try to explain business cycles using microfoundations.<p>Keynesians don&#x27;t need it they use other routes to explain why aggregate demand exists(Pigou&#x27;s wealth effect, Keynes interest rate effect, and the Mundell-Fleming exchange-rate effect).  The downside to the Keynesian approach is the Lucas critique[0].  That relationships based on historical data are vulnerable to change when monetary policy changes.  This started the New Keynesian&#x2F;NeoClassical&#x2F;Keynesian dvision.<p>[0] - <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Lucas_critique" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Lucas_critique</a>