Let AE = Aggregate Expenditures, C = Consumption, I_P =

question 141

Multiple Choice

Let AE = Aggregate Expenditures, C = Consumption, I_P = Planned Investment,
G =Government Purchases. Consider a simple aggregate expenditures model, where
AE = C + I_P + G and all components of aggregate expenditures except consumption are autonomous. All other things unchanged, an increase in the price level,

• A) shifts the aggregate expenditures curve upwards and causes the aggregate demand curve to shift right.
• B) shifts the aggregate expenditures curve downwards and causes the aggregate demand curve to shift left.
• C) shifts the aggregate expenditures curve down and causes a movement up along a given aggregate demand curve.
• D) shifts the aggregate expenditures curve upwards and causes a movement down along a given aggregate demand curve.

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Definitions:

Mental Set

A psychological framework or mindset that predisposes an individual's thoughts, behavior, or perception, often making it difficult to think in new or creative ways.

Incubation

The period of subconscious processing that contributes to problem-solving after an initial period of work on a problem.

Water Jar Study

A set of cognitive psychology experiments that assess problem-solving abilities and the influence of mental set on participants' approaches to solving problems.

Analogous Problem

A problem that shares similar features with another problem, allowing solutions or insights from one to inform the other.