Consider a simple macro model with a given price level and demand- determined output. An exogenous change in the price level causes a
A)shift in both the AE and AD curves.
B)movement along the AE curve and a shift in the AD curve.
C)shift in the AE curve and a movement along the AD curve.
D)movement along both the AE and AD curves.
E)movement along AE but does not affect the AD curve.

Question

Quizplus · Accepted Answer

An exogenous change in the price level would cause a shift in the AE curve (as the purchasing power of households changes) and a movement along the AD curve (as the cost of production for firms changes). Therefore, the correct choice is C.

Consider a Simple Macro Model with a Given Price Level