Question

Explain the following carefully: “A change in the price level shifts the aggregate expenditures curve, but not the aggregate demand curve.” Include graphs as part of the analysis

Answer 1

An increase in price level will mean higher aggregate expenditures, which means the aggregate expenditure will actually shift up. The aggregate expenditures curve will shift up because price is not already on the Y-axis, but is something exogenous to the graph. Note that only variables that are not on the X-axis or Y-axis can shift a curve plotted on those X-axis and Y-axis. Now, an increase in the price level will not shift the aggregate demand curve because price is on the Y-axis of the graph for the aggregate demand curve.