Answer to Question #50762 in Macroeconomics for bob

Question

If the price level increases, the real value of household money holdings falls. This will result in a downward shift of aggregate expenditures and a leftward shift of the aggregate demand curve.
Explain in detail: True False or Uncertain

Answer 1

False
If the price level increases, the real value of household money holdings falls, because in this case money can buy fewer goods and services today than it could have bought in the past. This will also result in a downward shift of aggregate expenditures. But it won’t cause a leftward shift of the aggregate demand curve because the increase in price level leads to a movement to the left along a given aggregate-demand curve.