Question

In deriving the aggregate demand curve from the aggregate expenditures model we note that:

A) the real-balances effect is irrelevant to both models.
B) a change in the price level will have no impact on the aggregate expenditures schedule.
C) an increase (decrease) in the price levels shifts the aggregate expenditures schedule upward
(downward).
D) an increase (decrease) in the price level shifts the aggregate expenditures schedule downward
(upward).

Answer 1

An increase (decrease) in the price levels shifts the aggregate expenditures schedule downward (upward) in the aggregate demand curve.

Step-by-step explanation:

In deriving the aggregate demand curve from the aggregate expenditures model, we note that an increase (decrease) in the price levels shifts the aggregate expenditures schedule downward (upward). This means that as the price level increases, aggregate expenditures decrease, and as the price level decreases, aggregate expenditures increase.

The downward-sloping aggregate demand (AD) curve shows the relationship between the price level for outputs and the quantity of total spending in the economy. It slopes down because of the wealth effect, interest rate effect, and foreign price effect.

For example, when the price level increases, the wealth effect reduces consumer spending because higher prices reduce real wealth. The interest rate effect leads to higher interest rates, which reduces investment spending. And the foreign price effect makes domestic goods relatively more expensive, discouraging exports and increasing imports.

Answer 2

An increase (decrease) in the price levels shifts the aggregate expenditures schedule downward (upward) in the aggregate demand curve.

Step-by-step explanation:

In deriving the aggregate demand curve from the aggregate expenditures model, we note that an increase (decrease) in the price levels shifts the aggregate expenditures schedule downward (upward). This means that as the price level increases, aggregate expenditures decrease, and as the price level decreases, aggregate expenditures increase.

The downward-sloping aggregate demand (AD) curve shows the relationship between the price level for outputs and the quantity of total spending in the economy. It slopes down because of the wealth effect, interest rate effect, and foreign price effect.

For example, when the price level increases, the wealth effect reduces consumer spending because higher prices reduce real wealth. The interest rate effect leads to higher interest rates, which reduces investment spending. And the foreign price effect makes domestic goods relatively more expensive, discouraging exports and increasing imports.

Answer 3

An increase (decrease) in the price levels shifts the aggregate expenditures schedule downward (upward) in the aggregate demand curve.

Step-by-step explanation:

In deriving the aggregate demand curve from the aggregate expenditures model, we note that an increase (decrease) in the price levels shifts the aggregate expenditures schedule downward (upward). This means that as the price level increases, aggregate expenditures decrease, and as the price level decreases, aggregate expenditures increase.

The downward-sloping aggregate demand (AD) curve shows the relationship between the price level for outputs and the quantity of total spending in the economy. It slopes down because of the wealth effect, interest rate effect, and foreign price effect.

For example, when the price level increases, the wealth effect reduces consumer spending because higher prices reduce real wealth. The interest rate effect leads to higher interest rates, which reduces investment spending. And the foreign price effect makes domestic goods relatively more expensive, discouraging exports and increasing imports.