Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G = Government Purchases. Consider a simple aggregate expenditures model, where AE = C + I_P + G and all components of aggregate expenditures except consumption are autonomous. All other things unchanged, a decrease in the price level A) shifts the aggregate expenditures curve upwards and causes the aggregate demand curve to shift right. B) shifts the aggregate expenditures curve downwards and causes the aggregate demand curve to shift left. C) shifts the aggregate expenditures curve downwards and causes a movement up along a given aggregate demand curve. D) shifts the aggregate expenditures curve upwards and causes a movement down along a given aggregate demand curve.

Question

Quizplus · Accepted Answer

A decrease in the price level increases real wealth, leading to higher consumption, which shifts the AE curve upwards. This results in a movement down along the aggregate demand curve, as lower prices increase the quantity of goods demanded.

Let AE = Aggregate Expenditures, C = Consumption, IP =

Let AE = Aggregate Expenditures, C = Consumption, I_P =