A decrease in the price level leads to which of the following sequences?
A) The money demand curve shifts leftward,the interest rate drops,the aggregate expenditure line shifts upward,and there is movement downward along the aggregate demand curve.
B) The money demand curve shifts rightward,the interest rate increases,the aggregate expenditure line shifts downward,and there is movement upward along the aggregate demand curve.
C) The money demand curve shifts leftward,the interest rate drops,the aggregate expenditure line shifts downward,and there is movement upward along the aggregate demand curve.
D) The money demand curve shifts rightward,the interest rate increases,the aggregate expenditure line shifts upward,and there is movement downward along the aggregate demand curve.
E) The money demand curve shifts leftward,the interest rate drops,the aggregate expenditure line shifts upward,and there is movement upward along the aggregate demand curve.

Question

Quizplus · Accepted Answer

A decrease in the price level leads to an increase in the real money supply, which shifts the money demand curve leftward. This leads to a decrease in the interest rate, which shifts the aggregate expenditure line upward. The upward shift in the aggregate expenditure line leads to an increase in aggregate demand, which is represented by a movement upward along the aggregate demand curve.

A Decrease in the Price Level Leads to Which of the Following