The relationship between the aggregate demand curve and the aggregate expenditures model is shown in the fact that:
A)a decrease in the price level shifts the aggregate expenditures schedule downward and decreases real GDP.
B)a decrease in the price level shifts the aggregate expenditures schedule upward and increases real GDP.
C)an increase in the price level shifts the aggregate expenditures schedule upward and increases real GDP.
D)an increase in the price level shifts the aggregate expenditures schedule downward and increases real GDP.

Question

Quizplus · Accepted Answer

The aggregate expenditures model shows the relationship between aggregate expenditures and real GDP. The aggregate demand curve shows the relationship between the price level and real GDP. As the price level decreases, the aggregate expenditures schedule shifts upward because consumers and firms are more willing to spend at lower prices. This leads to an increase in real GDP, as shown in the aggregate demand curve. Therefore, a decrease in the price level shifts the aggregate expenditures schedule upward and increases real GDP, as described in choice B.

The Relationship Between the Aggregate Demand Curve and the Aggregate