In the aggregate demand-aggregate supply model,an increase in the price level will
A) increase money demand,raise the interest rate,reduce aggregate expenditure,and decrease equilibrium real GDP
B) decrease money demand,lower the interest rate,increase aggregate expenditure,and increase real GDP
C) increase the money supply,lower the interest rate,increase aggregate expenditure,and increase real GDP
D) decrease the money supply,raise the interest rate,reduce aggregate expenditure,and decrease real GDP
E) not change money supply,money demand or the interest rate,but will shift the aggregate demand curve to the right

Question

Quizplus · Accepted Answer

An increase in the price level leads to an increase in money demand as people need more money to purchase goods and services at higher prices. This increase in money demand leads to a rise in the interest rate, which reduces investment spending and consumption, and ultimately decreases aggregate expenditure. As a result, equilibrium real GDP decreases.

In the Aggregate Demand-Aggregate Supply Model,an Increase in the Price