The aggregate expenditures model is built upon which of the following assumptions?
A) Prices are fixed.
B) The economy is at full employment.
C) Prices are fully flexible.
D) Government spending policy has no ability to affect the level of output.

Question

Quizplus · Accepted Answer

The aggregate expenditures model assumes that prices are fixed in the short run, which means that changes in output are not immediately reflected in the price level. This allows for the model to focus on the relationship between total spending and output. The other options are either not assumed by the model (B, D) or are in direct contrast to the assumption of fixed prices (C).

The Aggregate Expenditures Model Is Built Upon Which of the Following