How does a reduction in the price level affect the position of the C + I + G + X curve and in turn the equilibrium level of real GDP?
A) The C + I + G + X curve shifts down, thereby reducing the equilibrium level of real GDP.
B) The C + I + G + X curve shifts down, thereby increasing the equilibrium level of real GDP.
C) The C + I + G + X curve shifts up, thereby reducing the equilibrium level of real GDP.
D) The C + I + G + X curve shifts up, thereby increasing the equilibrium level of real GDP.

Question

Quizplus · Accepted Answer

A reduction in the price level increases the purchasing power of consumers' money, leading to an increase in consumption (C), potentially stimulating investment (I) due to higher demand and lower interest rates, and making exports (X) more competitive abroad while reducing imports, all of which shift the C + I + G + X curve upwards, thereby increasing the equilibrium level of real GDP.

How Does a Reduction in the Price Level Affect the Position