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Figure: Classical Versus Keynesian Macroeconomics
-(Figure: Classical Versus Keynesian Macroeconomics) Look at the figure Classical Versus Keynesian Macroeconomics. According to the classical view, if this economy shifts from AD₁ to AD₂, perhaps because of a large decline in investment spending by businesses, the price level will _____ and real GDP will _____.

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Figure: Classical Versus Keynesian Macroeconomics

-(Figure: Classical Versus Keynesian Macroeconomics) Look at the figure Classical Versus Keynesian Macroeconomics. According to the classical view, if this economy shifts from AD₁ to AD₂, perhaps because of a large decline in investment spending by businesses, the price level will _____ and real GDP will _____.

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According to the classical view, a decrease in investment spending will cause a leftward shift of the aggregate demand curve (AD₁ to AD₂) and a decrease in the equilibrium level of real GDP. However, the classical view also suggests that changes in aggregate demand would not affect the price level, which means that it would remain the same as before or might even fall depending on the supply-side factors. Therefore, the correct answer is C, where the price level will fall, and real GDP will not change.

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