This Question: 1 pt 30 of 40 (0 complete) This Quiz: 40 pts possibl Assume the e

Question

This Question: 1 pt 30 of 40 (0 complete) This Quiz: 40 pts possibl Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point W. The price level is Po. Now, suppose there is an exogenous rise in the price level to P1 Which of the following statements describes the likely macroeconomic effects? Click the icon to view the aggregate expenditure and aggregate demand graphs. A. The AE curve shifts to AE2 a new equilibrium is established at point U, and the AD curve shifts from A o to AD1 and equilibrium moves from point B to point D OB. The AE curve shits to AE, a new equilibrium is established at point V, and the economy moves from point B to point A along AD C. The AE curve shifts to AE, a new equilibrium is established at point V, and the AD curve shifts from ADO to AD, and equilibrium from point B to point D. The AE curve shifts to AE2 a new equilibrum is established at pont and the economy moves from point to point along ADO

Explanation / Answer

b) is the answer

as price level rises, due to wealth effect, AE will decrease and AE will shift downward to AE1 and there will be movement along Aggregate demand curve and equilibrium at A will be achieved

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