Exhibit 14-8 Aggregate demand and supply

-In Exhibit 14-8,if aggregate demand shifts from AD₃ to AD₂,real GDP will:
A) fall from $7.0 to $4.0, and the price level will not change.
B) not change, and the price level will fall from 120 to 100.
C) fall from $7.0 to $3.0, and the price level will fall from 120 to 100.
D) fall from $8.0 to $4.0, and the price level will fall from 120 to 100.
E) fall from $7.0 to $4.0, and the price level will fall from 120 to 100.

Question

Exhibit 14-8 Aggregate demand and supply
 
-In Exhibit 14-8,if aggregate demand shifts from AD₃ to AD₂,real GDP will:
A) fall from $7.0 to $4.0, and the price level will not change. 
B) not change, and the price level will fall from 120 to 100. 
C) fall from $7.0 to $3.0, and the price level will fall from 120 to 100. 
D) fall from $8.0 to $4.0, and the price level will fall from 120 to 100. 
E) fall from $7.0 to $4.0, and the price level will fall from 120 to 100.

Quizplus · Accepted Answer

A shift in aggregate demand from AD₃ to AD₂ indicates that consumers, investors, government, and trade partners have decreased their demand for goods and services. As a result, real GDP will decrease from $7.0 to $4.0. Simultaneously, the price level will fall from 120 to 100, reflecting the decrease in demand for goods and services, causing a decrease in their price. Therefore, option E is the correct answer.

Exhibit 14-8 Aggregate Demand and Supply