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Yesterday, 18:40

Can a change in the price level change aggregate demand?

(A) Yes, as the price level rises, aggregate demand falls.

(B) Yes, but only under the condition that the real balance effect is operational.

(C) No, only a change in a nonprice factor can change aggregate demand.

(D) No, a change in the price level can only change aggregate supply.

(E) none of the above

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  1. Yesterday, 20:07
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    Answer: Option (C) is correct.

    Explanation:

    GDP = Government spending + Investment spending + Consumption spending + Net Exports

    Changes in price level doesn't change the aggregate demand because aggregate demand can be affected by the changes in the demand of the components of Real GDP, changes in the consumption spending by the consumers, changes in the investment spending, changes in the government expenditure and the difference between exports and imports.

    If any of the component increases, then there is a rightward shift in the aggregate demand curve and vice versa.
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Home » Business » Can a change in the price level change aggregate demand? (A) Yes, as the price level rises, aggregate demand falls. (B) Yes, but only under the condition that the real balance effect is operational.
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