If consumption or gross investment is increasing because of the lower price level, that’s:Multiple choice question.a movement along the aggregate demand.both a shift of the aggregate demand and a movement along the aggregate demand.neither a shift of the aggregate demand nor a movement along the aggregate demand.a shift of the aggregate demand.
Question
If consumption or gross investment is increasing because of the lower price level, that’s:Multiple choice question.a movement along the aggregate demand.both a shift of the aggregate demand and a movement along the aggregate demand.neither a shift of the aggregate demand nor a movement along the aggregate demand.a shift of the aggregate demand.
Solution
The correct answer is: a movement along the aggregate demand.
Here's why:
The aggregate demand curve shows the quantity of goods and services that households, firms, the government, and customers abroad want to buy at each price level. A movement along the aggregate demand curve is caused by a change in the price level, holding everything else constant.
So, if consumption or gross investment is increasing because of a lower price level, it means that people are buying more because things are cheaper. This is represented by a movement along the aggregate demand curve, not a shift of the curve.
A shift of the aggregate demand curve, on the other hand, would be caused by a change in something other than the price level, such as changes in government spending, consumer confidence, or foreign income levels.
Similar Questions
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