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Occupational Health and Safety, Canadian Edition

15th Edition
by David L. Goetsch, University of West Florida and Oskaloosa-Walton Eugene Ozon, Algonquin College
1035 Solutions 49 Chapters 1446 Studied ISBN: 0133450244 Computer Science 5 (1)

Chapters 30A: DQ 1

DISCUSSION QUESTIONS

1. Explain carefully: “A change in the price level shifts the aggregate expenditures curve but not the aggregate demand curve.”


Step-By-Step Solution

DISCUSSION QUESTIONS

1. Explain carefully: “A change in the price level shifts the aggregate expenditures curve but not the aggregate demand curve.”

Answer: A change in the price level does not shift the aggregate demand curve. It simply represents a movement along the curve, because there is an inverse relationship between the price level and aggregate quantity demanded.

However, a change in the price level will shift the aggregate expenditures curve, which responds to the wealth, interest-rate, and foreign purchases effects occurring with a change in price level. When the price level declines, aggregate expenditures will rise, and when the price level rises, aggregate expenditures will fall. The aggregate expenditures model assumes a constant price level, so it is expressed in “real” terms. Appendix Figures 1 and 2 graphically illustrates the relationship between the two models.


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