The expenditure schedule and the aggregate demand curve show much the same thing, with one crucial difference—the price level. How does the price level affect the two schedules?
What will be an ideal response?
The expenditure schedule is drawn assuming a fixed price level. If there is a change in the price level, then the wealth of consumers will change and this will cause a change in consumption at the same level of income. Therefore, the expenditure schedule will shift when the price level changes. In contrast, the aggregate demand schedule is constructed with the price level as the explanatory variable on the vertical axis. When the price level changes, this causes movement along the aggregate demand schedule indicating changes in the amount of real GDP demanded.
You might also like to view...
Explain the theory of purchasing power parity
What will be an ideal response?
Individuals who suffer from unemployment spells lasting more than six months are ________
A) chronically unemployed B) frictionally unemployed C) discouraged workers D) no longer counted as part of the labor force
A horizontal line has an infinite slope
a. True b. False Indicate whether the statement is true or false
If orange juice and apple juice are substitutes, an increase in the price of orange juice will shift the demand curve for apple juice to the left
a. True b. False Indicate whether the statement is true or false