Question

In Exhibit 10-8, if aggregate demand shifts from AD5 to AD4, real GDP will:

a. not change, and the price level will fall from 170 to 100.
b. not change, and the price level will fall from 140 to 100.
c. fall from $8.0 to $6.0, and the price level will not change.
d. fall from $8.0 to $6.0, and the price level will fall from 140 to 120.
e. not change, and the price level will fall from 170 to 140.

Answer 1

A shift from AD5 to AD4 suggests a decrease in both real GDP and the price level, according to the patterns shown in similar figures provided.

Step-by-step explanation:

When discussing how aggregate demand affects the economy, it is essential to consider both the price level and real GDP. In a scenario where aggregate demand shifts from AD5 to AD4, we can infer the consequences by examining similar patterns illustrated in the provided figures. According to the figures that describe shifts in aggregate demand and their impact on equilibrium, a leftward shift in aggregate demand (from AD to AD1, for instance) results in a lower output level and a reduction in the price level.

In this case, as aggregate demand decreases, the new equilibrium will be at a lower output level and price level. Therefore, if aggregate demand shifts from AD5 to AD4, real GDP will decrease, and there will be downward pressure on the price level. However, without specific values or graphs provided for AD5 and AD4, we cannot conclusively determine the exact new levels of real GDP and price.