In deriving the aggregate demand curve from the aggregate expenditures model,:Multiple choice question.a change in the price level will have no impact on the aggregate expenditures schedule.a decrease in the price level shifts the aggregate expenditures schedule upward so that the new equilibrium GDP is higher.an increase in the price level shifts the aggregate expenditures schedule upward so that the new equilibrium GDP is lower.an increase in the price level shifts the aggregate expenditures schedule upward so that the new equilibrium GDP is higher.
Question
In deriving the aggregate demand curve from the aggregate expenditures model,:Multiple choice question.a change in the price level will have no impact on the aggregate expenditures schedule.a decrease in the price level shifts the aggregate expenditures schedule upward so that the new equilibrium GDP is higher.an increase in the price level shifts the aggregate expenditures schedule upward so that the new equilibrium GDP is lower.an increase in the price level shifts the aggregate expenditures schedule upward so that the new equilibrium GDP is higher.
Solution
The correct answer is: a decrease in the price level shifts the aggregate expenditures schedule upward so that the new equilibrium GDP is higher.
Here's why:
-
The aggregate demand curve shows the relationship between the price level and the quantity of real GDP demanded. It has a negative slope, indicating that as the price level falls, the quantity of real GDP demanded rises.
-
The aggregate expenditures model is a macroeconomic model that focuses on the short-run relationship between total spending and real GDP in the economy.
-
When the price level decreases, consumers and businesses are able to purchase more goods and services. This increases consumption and investment, which are components of aggregate expenditures.
-
As aggregate expenditures increase, the aggregate expenditures schedule shifts upward. This means at each possible level of GDP, the total spending in the economy is higher.
-
The increase in total spending leads to an increase in real GDP, as businesses produce more goods and services to meet the higher demand. This results in a new equilibrium GDP that is higher than before.
-
Therefore, a decrease in the price level shifts the aggregate expenditures schedule upward so that the new equilibrium GDP is higher.
Similar Questions
Along the horizontal range of the aggregate supply curve, an increase in the aggregate demand curve will increase:Group of answer choicesboth the price level and real GDP.only real GDP.only the price level.real GDP and reduce the price level.
Which of the following would NOT cause a shift in the aggregate demand curve?Question 9Answera.changes in spending by consumersb.changes in spending by foreign buyers c.changes in spending by businessesd.changes in the prices of goods and servicese.changes in spending by the government
The aggregate demand curve illustrates the relationship between ________ and the ________, holding constant all other factors that affect aggregate expenditure. a. The price level; quantity of consumption expenditure. b. The interest rate; quantity of planned aggregate expenditure. c. The price level; quantity of planned investment expenditure. d. The price level; quantity of planned aggregate expenditure.
A change in aggregate demand equals the multiplier times the initial change in expenditures.
If the aggregate demand curve (AD) presented in lectures is constructed by allowing the price level to vary in the IS/LM model with rate-setting monetary policy (i.e. an interest rate rule), then, ceteris paribusGroup of answer choicesthe price level and real income will not be inversely related because the rate of interest is kept constant under rate-setting monetary policylower price levels will be associated with higher levels of investment expenditurea rise in the target price level will lead to a leftward shift of the aggregate demand curvehigher price levels are associated with lower rates of interest and thus lower levels of income
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.