The Aggregate Expenditures Model and the Aggregate Demand Curve Can

question 214

Multiple Choice

The aggregate expenditures model and the aggregate demand curve can be reconciled because,other things being equal,in the aggregate expenditures model:

• A) changes in the price level have no effect on the equilibrium level of GDP.
• B) an increase in the price level increases the real value of wealth.
• C) the level of aggregate expenditures and therefore the level of real GDP vary inversely with the price level.
• D) the level of aggregate expenditures and therefore the level of real GDP vary directly with the price level.

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Definitions:

Price-Taker Firm

A business that has no control over the market price of its products and must accept the prevailing market price.

Economic Profit

The difference between a firm's total revenue and its total costs, including both explicit and opportunity costs.

Opportunity Cost

The highest valued alternative that must be sacrificed as a result of choosing an option.