Consider a simple macro model with a given price level and demand- determined output. An exogenous change in the domestic price level changes equilibrium real GDP
A)in the same direction.
B)by a lesser amount in either direction.
C)by the same amount in the same direction.
D)in the opposite direction.
E)by the same amount in the opposite direction.

Question

Quizplus · Accepted Answer

An exogenous change in the domestic price level will shift the aggregate demand curve. If the change in price level is an increase, the aggregate demand curve will shift leftward and equilibrium real GDP will decrease. If the change in price level is a decrease, the aggregate demand curve will shift rightward and equilibrium real GDP will increase. Therefore, the change in equilibrium real GDP will be in the opposite direction of the exogenous change in the domestic price level.

Consider a Simple Macro Model with a Given Price Level