On a graph that shows the derivation of the AD curve, an exogenous change in the price level causes
A)a movement along the AE curve and a shift in the AD curve.
B)a shift in both the AE and AD curves.
C)a movement along the AE curve but not along the AD curve.
D)a shift in the AE curve and a movement along the AD curve.
E)a movement along both the AE and AD curves.

Question

Quizplus · Accepted Answer

An exogenous change in the price level would cause a movement along the AE curve as consumption, investment, government spending, and net exports adjust to reflect the new price level. However, this change would also shift the AD curve as the quantity of real output demanded at any given price level changes. Therefore, the correct answer is D - a shift in the AE curve and a movement along the AD curve.

On a Graph That Shows the Derivation of the AD