Question

a. An increase in the price level in an economy will _____.​

a	​shift the aggregate expenditure line downward, and result in a greater real GDP
b	shift the aggregate expenditure line upward, and result in a greater real GDP​
c	shift the aggregate expenditure line downward​, and result in a lower real GDP
d	​shift the aggregate expenditure line upward, and result in a lower real GDP​
e	shift the aggregate demand curve toward the aggregate supply curve

b. A decrease in the price level in an economy will _____.​

a	shift the aggregate demand curve toward the aggregate supply curve
b	​shift the aggregate expenditure line downward, and result in a greater real GDP
c	shift the aggregate expenditure line upward, and result in a greater real GDP​
d	shift the aggregate expenditure line downward​, and result in a lower real GDP
e	​shift the aggregate expenditure line upward, and result in a lower real GDP​

c. An aggregate demand curve is created by getting different points from :​

a	​shifting the 45-degree line to new real GDP
b	letting changes in autonomous spending shift the AE line.​
c	letting changes in the price level shift the AE line to a new real GDP.​
d	letting changes in the level of income shift the AE line to a new real GDP.​
e	letting changes in real GDP shift the AE line.

d. The aggregate demand curve of an economy illustrates the :​

a	the inverse relationship between the price level and real GDP​ quantity demanded
b	the relationship between price level and interest rates.​
c	​the relationship between real income levels and nominal income levels.
d	​the positive relationship between the price level and real GDP demanded
e	​the relationship between income levels and real gross domestic product (GDP).

e. If the consumption spending (C) in an economy increases at a given price level, _____.​

a	the aggregate expenditure curve shifts upward and the aggregate demand curve shifts to the left​
b	the aggregate expenditure line shifts upward and the aggregate demand curve shifts to the right​
c	​the aggregate expenditure line shifts upward and the economy moves upward along the aggregate demand curve
d	the aggregate expenditure line shifts downward and the economy moves upward along the aggregate demand curve​
e	the aggregate expenditure line shifts downward and the aggregate demand curve shifts to the left

f. If the consumption spending (C) in an economy decreases at a given price level, _____.​

a	​the aggregate expenditure line shifts upward and the economy moves upward along the aggregate demand curve
b	the aggregate expenditure line shifts upward and the aggregate demand curve shifts to the right​
c	the aggregate expenditure curve shifts upward and the aggregate demand curve shifts to the left​
d	the aggregate expenditure line shifts downward and the economy moves upward along the aggregate demand curve​
e	the aggregate expenditure line shifts downward and the aggregate demand curve shifts to the left

Answer 1

a) An increase in the price level in the economy will reduce the consumer willingness to pay for the good and reduce aggregate demand shifts leftward which reduce the real GDP. In the diagram below, oitput level falls from Y to Y1. Option C is correct.

b) A decrease in the price level in economy will raise willingness to pay for goods and shift aggregate demand curve to its right and raise aggregate demand. In the diagram below, output rises from Y to Y1. Option C is correct.

c) Price level shifts the AE curve up and down which helps in derivation of demand curve. As price rises, aggregate expenditure curve falls from AE0 to AD2 resulting in lower real GDP. Option C is correct.

d) Aggregate demand curve is a negatively sloped curve showing a inverse relationship between price and quantity demanded. When price falls, consumers buys more units of goods and vice versa. Option A is correct.

e) If consumption expenditure rises at a given price level, aggregate expenditure curve goes up and there is downward movement along the demand curve where more goods are consumed.

f) If consumption spending decreases at given price level, aggregate expenditure curve falls at a given price level which makes a upward movement along the demand curve. Option D is correct.