An increase in the price level leads to
A) a leftward movement along both the AE and AD curves.
B) a downward shift in the AE curve and a movement upward along the AD curve.
C) an upward shift in the AE curve and a movement upward along the AD curve.
D) a downward shift in both the AE and AD curves.
E) a downward shift in the AD curve and a movement downward along the AE curve.

Question

Quizplus · Accepted Answer

An increase in the price level typically leads to a decrease in the real value of money, which can reduce consumption and investment. This is represented by a downward shift in the Aggregate Expenditure (AE) curve. However, on the Aggregate Demand (AD) curve, an increase in the price level is shown by a movement up along the curve, as the AD curve reflects the relationship between the price level and the quantity of goods and services demanded.

An Increase in the Price Level Leads to