An increase in the price level
A)shifts the AE curve downward and decreases equilibrium expenditure.
B)shifts the AE curve downward and increases equilibrium expenditure.
C)has no impact on the AE curve.
D)shifts the AE curve upward and increases equilibrium expenditure.
E)shifts the AE curve upward and decreases equilibrium expenditure.

Question

Quizplus · Accepted Answer

An increase in the price level leads to a decrease in the real value of disposable income, which in turn reduces consumption expenditures. This shift in consumer spending ultimately leads to a decrease in equilibrium expenditure, which is shown by a downward shift in the Aggregate Expenditure (AE) curve.

An Increase in the Price Level