If consumption, gross investment, or net exports are increasing because of a lower price level, there has been a:Multiple choice question.movement along the AS curve.shift of the AD curve.movement along the AD curve.shift of the AS curve.
Question
If consumption, gross investment, or net exports are increasing because of a lower price level, there has been a:Multiple choice question.movement along the AS curve.shift of the AD curve.movement along the AD curve.shift of the AS curve.
Solution
The correct answer is: movement along the AD curve.
Here's why:
The Aggregate Demand (AD) curve shows the quantity of all goods demanded by households, firms, government, and the rest of the world at different price levels. When the price level decreases, people tend to consume more, invest more, and export more because goods and services are cheaper. This is represented by a movement along the AD curve, not a shift of the curve.
A shift of the AD curve would occur if there was a change in the factors that affect AD other than the price level, such as changes in government policy, consumer confidence, or foreign income levels.
On the other hand, the Aggregate Supply (AS) curve shows the total quantity of output (i.e., real GDP) that firms will produce and sell at different price levels. Movements along or shifts of the AS curve are caused by changes in the price level or changes in the cost of inputs, not by changes in consumption, investment, or net exports.
Similar Questions
If consumption or gross investment is increasing because of the lower price level, that’s:Multiple choice question.a movement along the aggregate demand.both a shift of the aggregate demand and a movement along the aggregate demand.neither a shift of the aggregate demand nor a movement along the aggregate demand.a shift of the aggregate demand.
A movement along the AD curve is due to:Multiple choice question.a change in aggregate supply.changes in the determinants of aggregate demand.a change in determinants of demand.changes in the price level.
A leftward shift in the AD curve accompanied by a leftward shift of the AS curve willA) increase the price level but have an uncertain effect on GDP.B) reduce the price level but have an uncertain effect on GDP.C) increase GDP but have an uncertain effect on the price level.D) reduce GDP but have an uncertain effect on the price level.E) increase both GDP and the price level
A decrease in the real money supply caused by an increase in the price level is graphically represented by (A) A movement along the AD curve to the right. (B) A shift of the AD curve to the left. (C) A movement along the AD curve to the left. (D) An increase in the slope of the AD curve. (E) A shift of the AD curve to the right.
The effect on the aggregate demand of a decrease in the price level is represented by a/an _______________ the AD curve. upward movement along downward movement along upward shift of leftward shift of None of the above are correct
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