ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -movement downward along a fixed aggregate demand curve. An increase in aggregate expenditures resulting from a decrease in the price level is equivalent to a: aggregate demand curve would shift to the right.

Detailed explanation-2: -If aggregate expenditures exceed real GDP, then firms will increase their output and real GDP will rise. If aggregate expenditures equal real GDP, then firms will leave their output unchanged; we have achieved equilibrium in the aggregate expenditures model. At equilibrium, there is no unplanned investment.

Detailed explanation-3: -The lower the price level, the higher the aggregate expenditures curve and the higher the equilibrium level of real GDP.

Detailed explanation-4: -When the price level falls, consumers are wealthier, a condition which induces more consumer spending. Thus, a drop in the price level induces consumers to spend more, thereby increasing the aggregate demand. The second reason for the downward slope of the aggregate demand curve is Keynes’s interest-rate effect.

Detailed explanation-5: -This downward slope indicates that increases in the price level of outputs lead to a lower quantity of total spending. The graph shows a downward sloping aggregate demand curve, showing that, as the price level rises, the amount of total spending on domestic goods and services declines.