On a graph that shows the derivation of the AD curve,an exogenous change in the price level causes
A)a shift in the AE curve and a movement along the AD curve.
B)a shift in both the AE and AD curves.
C)a movement along the AE curve and a shift in the AD curve.
D)a movement along the AE curve but not along the AD curve.
E)a movement along both the AE and AD curves.

Question

Quizplus · Accepted Answer

An exogenous change in the price level would cause a movement along the AE curve (since the AD curve is derived from the AE curve), but also a shift in the AE curve due to the impact on planned aggregate expenditures. However, the AD curve itself does not shift since it represents the combination of all prices and quantities that result in equilibrium in the goods and services market.

On a Graph That Shows the Derivation of the AD