The aggregate expenditures model and the aggregate demand curve can be reconciled because,other things being equal,in the aggregate expenditures model:
A) changes in the price level have no effect on the equilibrium level of GDP.
B) an increase in the price level increases the real value of wealth.
C) the level of aggregate expenditures and therefore the level of real GDP vary inversely with the price level.
D) the level of aggregate expenditures and therefore the level of real GDP vary directly with the price level.

Question

Quizplus · Accepted Answer

In the aggregate expenditures model, an increase in the price level reduces the real value of wealth, leading to lower consumption and investment, thus decreasing aggregate expenditures and real GDP, showing an inverse relationship.

The Aggregate Expenditures Model and the Aggregate Demand Curve Can