When the price level increases, aggregate planned expenditure ________ and equilibrium real GDP ________. As a result, in the AS-AD model, the aggregate demand curve has a ________ slope.
A) decreases; increases; negative
B) increases; increases; positive
C) increases; decreases; negative
D) decreases; decreases; positive
E) decreases; decreases; negative

Question

Quizplus · Accepted Answer

When the price level increases, aggregate planned expenditure decreases because the purchasing power of money falls, leading to a decrease in consumption and investment. This decrease in aggregate planned expenditure leads to a decrease in equilibrium real GDP. In the AS-AD model, this relationship is represented by a downward (negative) slope of the aggregate demand curve, indicating that as the price level rises, the quantity of goods and services demanded decreases.

When the Price Level Increases, Aggregate Planned Expenditure ________ and Equilibrium