A decrease in the price level
A) shifts the AD curve to the right.
B) shifts the AD curve to the left.
C) causes an upward movement along the existing AD curve.
D) causes a downward movement along the existing AD curve.
E) none of the above

Question

Quizplus · Accepted Answer

A decrease in the price level causes a decrease in the cost of production, increasing profits and the willingness of firms to supply more goods at a given price. This leads to an increase in output and a movement along the existing AD curve, not a shift in the AD curve. Therefore, the correct answer is D, causing a downward movement along the existing AD curve.

A Decrease in the Price Level