Final answer:
The aggregate demand curve would not shift as a result of falling output prices, as this would simply move the economy along the curve rather than shift it. Shifts in the AD curve occur due to changes in factors such as consumer wealth, money supply, investment, government spending, and net exports.
Step-by-step explanation:
The aggregate demand curve would not shift as a result of C) falling output prices. The aggregate demand (AD) curve represents the total quantity of goods and services demanded across all levels of output at various price levels. When the output prices fall, it generally moves along the AD curve, but does not cause the curve to shift. A shift is typically caused by changes in factors such as consumer wealth, the amount of money in circulation, plans for investment, government spending, and net exports. These factors are summarized in the components of aggregate demand: consumption (C), investment (I), government spending (G), and net exports (X-M).
Factors like a drop in consumer wealth (A), a decrease in the amount of money in circulation (B), or more pessimistic consumer expectations would indeed shift the AD curve, as they reflect changes in the components of aggregate demand. However, changing output prices affects the quantity of goods and services demanded rather than shifting the entire curve.
The relationship is such that if the AD curve shifts to the right, then the equilibrium quantity of output and the price level will rise. Conversely, if the AD curve shifts to the left, the equilibrium quantity of output and the price level will fall. The degree to which output or price levels change as a result is determined by where the AD curve intersects with the aggregate supply (AS) curve.