Other things constant, if the general price level rises, we would expect the aggregate expenditure (AE) function to shift:
A) down because aggregate demand shifts upward.
B) down because the real money supply falls and interest rates rise.
C) up because the aggregate supply curve shifts upward.
D) up because households have more real income.

Question

Quizplus · Accepted Answer

When the general price level rises, the real value of money decreases, leading to a decrease in the real money supply. This typically results in higher interest rates, which can dampen spending and investment, effectively shifting the aggregate expenditure function downward.

Other Things Constant, If the General Price Level Rises, We