Refer to the above diagrams.A decline in aggregate expenditures from AE₂ to AE₁resulting from the wealth, interest rate, and foreign trade effects would be depicted as: A)a movement from A to B along aggregate demand curve AD₁. B)a movement from C to A along aggregate demand curve AD₁. C)a shift of aggregate demand from AD₁ to AD₂. D)a shift of aggregate demand from AD₂ to AD₁.

Question

Quizplus · Accepted Answer

A decline in aggregate expenditures due to the wealth, interest rate, and foreign trade effects would cause a movement along the aggregate demand curve AD₁, as the level of output demanded would decrease at each price level. This is depicted as a movement from point C to point A along the curve. There is no shift of the aggregate demand curve in this situation.

Refer to the Above Diagrams