A fall in the price level causes changes in the IS-LM diagram that can also be recorded as a
A)rightward shift of the AD curve.
B)leftward shift of the AD curve.
C)movement downward along an AD curve.
D)movement upward along an AD curve.

Question

Quizplus · Accepted Answer

A fall in the price level, holding everything else constant, increases the real money supply, which lowers interest rates. This stimulates investment and increases the quantity of goods and services demanded, represented as a movement downward along the Aggregate Demand (AD) curve, not a shift of the curve itself.

A Fall in the Price Level Causes Changes in the IS-LM