The Relationship Between the Aggregate Demand Curve and the Aggregate

question 278

Multiple Choice

The relationship between the aggregate demand curve and the aggregate expenditures model is derived from the fact that

• A) a decrease in the price level shifts the aggregate expenditures schedule downward and decreases equilibrium GDP.
• B) a decrease in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP.
• C) an increase in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP.
• D) an increase in the price level shifts the aggregate expenditures schedule downward and increases equilibrium GDP.

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Definitions:

Equilibrium Price

The market price at which the quantity of a good supplied equals the quantity demanded, leading to a stable market condition.

Price Ceilings

Government-imposed limits on how high a price can be charged for a product or service, aimed at protecting consumers.

Ration Coupons

Documents or certificates that allow the holder to purchase a certain amount of a product, used especially during shortages to ensure fair distribution.

Government-mandated Increase

A requirement imposed by the government that results in a rise, often relating to wages, prices, or taxes.