In a macro model with a constant price level,an increase in government purchases will cause the AE curve to shift
A)downward and the AD curve to shift to the right.
B)downward and the AD curve to shift to the left.
C)downward and a movement to the right along the AD curve.
D)upward and the AD curve to shift to the left.
E)upward and the AD curve to shift to the right.

Question

Quizplus · Accepted Answer

An increase in government purchases will shift the AE curve upward. This is because government purchases are a component of aggregate expenditure (AE), which is the total amount of spending in an economy. Therefore, the increase in government purchases will increase AE at each level of income. Since the price level is constant, the increase in AE will cause an increase in real GDP, which will shift the AD curve to the right.

In a Macro Model with a Constant Price Level,an Increase