Other things being equal, the economy's aggregate demand curve shows that
A) as the price level falls, total planned expenditures fall as well.
B) a change in the general price level causes the curve to shift.
C) a change in the general price level causes a change in the quantity of final goods and services purchased.
D) real Gross Domestic Product (GDP) and the price level are not related.

Question

Quizplus · Accepted Answer

The aggregate demand (AD) curve shows the relationship between the total quantity of goods and services demanded in the economy and the price level. As the price level in the economy changes, there will be a corresponding change in the quantity of final goods and services purchased. This is because changes in the price level affect consumer purchasing power, investment decisions, and net exports. Therefore, C is the best choice. A is incorrect because while a fall in the price level may lead to a fall in total planned expenditures for some goods, it could increase demand for others. B is incorrect because a change in the general price level will cause a movement along the AD curve, not a shift. D is incorrect because real GDP and the price level are related, as real GDP is measured by the total value of goods and services produced in an economy, which is affected by changes in the price level.

Other Things Being Equal, the Economy's Aggregate Demand Curve Shows