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An increase in aggregate expenditures resulting from a decrease in the price level is equivalent to a:

A) rightward shift of the aggregate demand curve.
B) leftward shift of the aggregate demand curve.
C) movement downward along a fixed aggregate demand curve.
D) decrease in aggregate supply.

User Kanwal
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1 Answer

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Final answer:

A decrease in the price level leading to an increase in aggregate expenditures corresponds to a movement downward along a fixed aggregate demand curve, not a shift of the curve itself.

Step-by-step explanation:

An increase in aggregate expenditures resulting from a decrease in the price level is equivalent to a movement downward along a fixed aggregate demand curve. This is because the aggregate demand (AD) curve represents the relationship between the price level and the quantity of output demanded. When the price level decreases, it leads to an increase in the quantity of total spending without altering the relationship between price and output levels that the AD curve represents. Thus, the correct answer is: C) movement downward along a fixed aggregate demand curve.

Moreover, as the Keynesian Perspective suggests, a rightward shift of the aggregate demand curve results in a higher real GDP and increased price levels, whereas a leftward shift would cause a lower real GDP and decreased price levels. This is affected by whether the AD curve shifts on the relatively flat or steep portion of the aggregate supply (AS) curve.

User Roseanna
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