In the aggregate demand-aggregate supply model, the economy's price level is assumed to be
A) constant, just like in the aggregate expenditures model.
B) variable, just like in the aggregate expenditures model.
C) constant, unlike in the aggregate expenditures model.
D) variable, unlike in the aggregate expenditures model.

Question

Quizplus · Accepted Answer

In the aggregate demand-aggregate supply model, the price level is allowed to vary based on the interaction between aggregate demand (which is influenced by factors like consumer spending, investment spending, government spending, and net exports) and aggregate supply (which is influenced by factors like production costs and available technology). This is different from the aggregate expenditures model, where the price level is assumed to be constant.

In the Aggregate Demand-Aggregate Supply Model, the Economy's Price Level