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