Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment, JG = Government Purchases. Consider a simple aggregate expenditures model, where JAE = C + I_P + G and all components of aggregate expenditures except consumption are autonomous. All other things unchanged, a decrease in the price level A) shifts the aggregate expenditures curve upwards. B) shifts the aggregate expenditures curve downwards. C) causes a movement up along a given aggregate expenditures curve. D) causes a movement down along a given aggregate expenditures curve.

Question

Quizplus · Accepted Answer

A decrease in the price level increases real wealth, which leads to an increase in consumption. Since consumption is a component of aggregate expenditures, an increase in consumption will shift the aggregate expenditures curve upwards.

Let AE = Aggregate Expenditures, C = Consumption, IP =

Let AE = Aggregate Expenditures, C = Consumption, I_P =