Answer to Question #79779 in Macroeconomics for Johann

Question

“A change in the price level shifts the aggregate expenditures curve, but not the aggregate demand curve.”

Answer 1

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. Figure 1 illustrates the relationship between the two models.