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Social Science Clinic => Economics => Macroeconomics => Topic started by: oliviahorn72 on Mar 16, 2019

Title: Using an aggregate demand graph, illustrate the impact of an increase in the price level on aggregate demand.
Post by: oliviahorn72 on Mar 16, 2019

Question 1

A general formula for the multiplier is

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Question 2

Using an aggregate demand graph, illustrate the impact of an increase in the price level on aggregate demand.

Title: Using an aggregate demand graph, illustrate the impact of an increase in the price level on aggregate demand.
Post by: Li Jun on Mar 16, 2019

Answer 1

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Answer 2

This illustrates an increase in the price level on the aggregate demand curve.  The actual movement is shown by moving from point B to point A.  The price level moves up from P₁ to P₂, and the quantity of real GDP demanded declines from Y₁ to Y₂.