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 fall in the price level to P₂. Which of the following statements describes the likely macroeconomic effects? OA. The AE curve shifts to AE₁, a new equilibrium is established at point V, and the AD curve shifts from AD to AD¹, and equilibrium moves from point B to point D. OB. The AE curve shifts to AE2, a new equilibrium is established at point U, and the AD curve shifts from AD to AD¹, and equilibrium from point B to point D. OC. The AE curve shifts to AE2, a new equilibrium is established at point U, and the economy moves from point B to point C along AD. O D. The AE curve shifts to AE₁, a new equilibrium is established at point V, and the economy moves from point B to point C along AD. Desired Aggregate Expenditure Price Level Y₁ W_ AE=Y AE₂ AEo AE₁ Yo Y₂ Real GDP Real GDP Q U Q Q

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 fall in the price level to P₂. Which of the following statements describes the likely macroeconomic effects? OA. The AE curve shifts to AE₁, a new equilibrium is established at point V, and the AD curve shifts from AD to AD¹, and equilibrium moves from point B to point D. OB. The AE curve shifts to AE2, a new equilibrium is established at point U, and the AD curve shifts from AD to AD¹, and equilibrium from point B to point D. OC. The AE curve shifts to AE2, a new equilibrium is established at point U, and the economy moves from point B to point C along AD. O D. The AE curve shifts to AE₁, a new equilibrium is established at point V, and the economy moves from point B to point C along AD. Desired Aggregate Expenditure Price Level Y₁ W_ AE=Y AE₂ AEo AE₁ Yo Y₂ Real GDP Real GDP Q U Q Q

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 2TY

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