Exhibit 14-2 Aggregate demand and supply

-In Exhibit 14-2,if aggregate demand shifts from AD₂ to AD₁,real GDP will:
A)not change and the price level will not change.
B)fall from $7 to $4 and the price level will not change.
C)fall from $4 to $3 and the price level will not change.
D)fall from $4 to $3 and the price level will fall from 120 to 100.
E)fall from $4 to $3 and the price level will fall from 170 to 100.

Question

Exhibit 14-2 Aggregate demand and supply
 
-In Exhibit 14-2,if aggregate demand shifts from AD₂ to AD₁,real GDP will:
A)not change and the price level will not change. 
B)fall from $7 to $4 and the price level will not change. 
C)fall from $4 to $3 and the price level will not change. 
D)fall from $4 to $3 and the price level will fall from 120 to 100. 
E)fall from $4 to $3 and the price level will fall from 170 to 100.

Quizplus · Accepted Answer

When aggregate demand shifts from AD₂ to AD₁, the equilibrium output will fall from $4 trillion to $3 trillion (as shown by the intersection of AD₁ and AS). Since there is no change in the price level, the correct choice is C - real GDP will fall from $4 to $3 and the price level will not change.

Exhibit 14-2 Aggregate Demand and Supply