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 both the AE and AD curves.
C) downward shift in the AD curve and a movement down along the AE curve.
D) leftward movement along both the AE and AD curves.

Question

Quizplus · Accepted Answer

An increase in the price level results in a decrease in the real value of money, which typically reduces consumption and investment. This is represented by a downward shift in the Aggregate Expenditure (AE) curve, as people and businesses are likely to spend less at higher price levels. It also results in a movement up along the Aggregate Demand (AD) curve because the AD curve shows the relationship between the price level and the quantity of output demanded, holding everything else constant. As the price level increases, the quantity of goods and services demanded decreases, which is shown by moving up along the AD curve (since it is downward sloping).

An Increase in the Price Level Results in a