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) increases; increases; positive
B) decreases; decreases; negative
C) decreases; decreases; positive
D) increases; decreases; negative
E) decreases; increases; negative

Question

Quizplus · Accepted Answer

When the price level increases, aggregate planned expenditure decreases because higher prices reduce the purchasing power of money, leading to lower consumption and investment. This decrease in expenditure leads to a decrease in equilibrium real GDP. Consequently, the aggregate demand curve in the AS-AD model has a negative slope, reflecting the inverse relationship between the price level and real GDP demanded.

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