Any change in the price level will result in a
A) shift in the AE and AD curves in the same direction.
B) shift in the AE curve and a movement along the AD curve.
C) movement along the AE curve and a shift of the AD curve.
D) shift in the AE and AD curves in opposite directions.

Question

Quizplus · Accepted Answer

A change in the price level (i.e. inflation or deflation) will result in a movement along the AD curve, as it represents the relationship between the price level and the level of real GDP demanded. However, it will also cause a shift in the AE curve, as consumers will adjust their spending patterns in response to changes in the price level. For example, if prices increase, consumers may reduce their spending, leading to a leftward shift in the AE curve. Therefore, the correct answer is B, which acknowledges both the movement along the AD curve and the shift in the AE curve.

Any Change in the Price Level Will Result in a