Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, G =Government Purchases. Consider a simple aggregate expenditures model, where AE = C + I_P + G and all components of aggregate expenditures except consumption are autonomous. All other things unchanged, an increase in the price level, A) shifts the aggregate expenditures curve upwards and causes the aggregate demand curve to shift right. B) shifts the aggregate expenditures curve downwards and causes the aggregate demand curve to shift left. C) shifts the aggregate expenditures curve down and causes a movement up along a given aggregate demand curve. D) shifts the aggregate expenditures curve upwards and causes a movement down along a given aggregate demand curve.

Question

Quizplus · Accepted Answer

An increase in the price level reduces real wealth, leading to lower consumption and thus a downward shift in the aggregate expenditures curve, causing a movement up along the aggregate demand curve.

Let AE = Aggregate Expenditures, C = Consumption, IP =

Let AE = Aggregate Expenditures, C = Consumption, I_P =