Question

In the neoclassical model, which is the most accurate explanation for the information depicted in the aggregate demand curve? Assume that the aggregate demand curve is not changing

a) An increase in RGDP consumed leads to a higher price level.
b) An increase in RGDP consumed leads to a lower price level.
c) An increase in the price level leads to more RGDP consumed.
d) An increase in the price level leads to less RGDP consumed.

Answer 1

Answer:

a) An increase in RGDP consumed leads to a higher price level.

Explanation:

RGDP will increase: When AD shifts right means, demand increases more and economy is performing past its potential and therefore, the production would increase leading to increase in real GDP(RGDP)

Answer 2

According to the neoclassical model, a) An increase in RGDP consumed leads to a higher price level.

What happens when there is a rise in RGDP?

When Real GDP rises, it means that the aggregate demand in the economy has increased on account of more goods and services being produced.

This would lead to a higher price level because with more people demanding goods and services, prices will rise to compensate.

In conclusion, option A is correct.

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