Narrbegin 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.

Question

Quizplus · Accepted Answer

When aggregate demand shifts from AD₂ to AD₁, real GDP will fall from $4 trillion to $3 trillion, but the price level will remain at $120. This is because the decrease in aggregate demand will reduce output and employment, which will cause a decrease in the level of prices through reduced demand for inputs.