Final answer:
A movement along the SRAS curve due to a change in the price level can be an expansionary or contractionary movement, with expansionary being correct if the price level rises and contractionary if it falls. During a recession, an expansionary fiscal policy is appropriate to increase aggregate demand and is illustrated by a shift of the AD curve to the right.
Step-by-step explanation:
The movement described in the question refers to a change along the short-run aggregate supply (SRAS) curve due to a variation in the price level. This is neither a structural shift nor a cyclical shift. Instead, movements along the SRAS curve in response to a change in the price level are either expansionary or contractionary. When the price level increases and the quantity of goods and services businesses are willing to produce at those prices goes up, it is an expansionary movement. Conversely, when the price level falls and the quantity of goods and services produced declines, it's known as a contractionary movement. Therefore, the correct answer is: C) Contractionary movement if the price level falls, and D) Expansionary movement if the price level rises.
In the context of fiscal policy during a recession, an expansionary fiscal policy would be more appropriate. This involves increasing government spending, decreasing taxes, or both to increase aggregate demand (AD). On the other hand, a contractionary fiscal policy, which involves decreasing government spending or increasing taxes, would not be suitable in a recession, as it would further reduce AD.
To illustrate, if the economy is experiencing a recession, the government could implement an expansionary fiscal policy to push the AD curve to the right, from AD0 to AD1, leading to a new equilibrium with higher output, reduced unemployment, and a rise in the price level. This shift would be represented by a movement along the SRAS curve towards higher levels of production. Conversely, under normal circumstances, if individuals anticipate an expansionary policy, they may adjust their expectations and wage demands accordingly, leading to a shift in the SRAS, but in the context of a recession, the focus is typically on increasing AD to mitigate the downturn.