In order to analyze the factors that determine the quantity of real GDP demanded, in the aggregate expenditure model we assume that
A) the unemployment level is fixed.
B) the inflation rate is assumed to equal the natural unemployment rate.
C) the natural rate of unemployment is fixed.
D) the price level is fixed.
E) real GDP does not change.

Question

Quizplus · Accepted Answer

In the aggregate expenditure model, we assume that the price level is fixed, meaning that changes in real GDP demanded are only due to changes in other factors such as consumption, investment, government spending, and net exports. The other options given (A, B, C, and E) are not relevant to analyzing the factors that determine the quantity of real GDP demanded.

In Order to Analyze the Factors That Determine the Quantity