An increase in the price level results in a
A) downward shift in the AE curve and a movement up along the AD curve.
B) downward shift in the AD curve and a movement down along the AE curve.
C) leftward movement along both the AE and AD curves.
D) downward shift in both the AE and AD curves.

Question

Quizplus · Accepted Answer

An increase in the price level causes a movement up along the AD curve because it represents a higher price level leading to lower quantity demanded. It also causes a downward shift in the AE curve because higher prices reduce real wealth and consumption, shifting planned expenditure downward.

An Increase in the Price Level Results in a