The aggregate expenditures model is built upon which of the following assumptions?
A) Prices are ﬁxed.
B) The economy is at full employment.
C) Prices are fully ﬂexible.
D) Government spending policy has no ability to affect the level of output.

Question

Quizplus · Accepted Answer

The aggregate expenditures model assumes that prices are fixed in the short-run, meaning that changes in aggregate demand will affect the level of output but not the price level. The other choices are not assumptions of the model - the model allows for the possibility of unemployment, recognizes that prices may not be fully flexible in the long-run, and includes government spending as a component of aggregate demand.

The Aggregate Expenditures Model Is Built Upon Which of the Following