Question

The effect of a decrease in aggregate demand on output and the price level depends on the shape of the aggregate supply curve.” explain this statement.​

Answer 1

Answer:

When government spending decreases, regardless of tax policy, aggregate demand decrease, thus shifting to the left. ... Thus, policies that raise the real exchange rate though the interest rate will cause net exports to fall and the aggregate demand curve to shift left.In the most general sense (and assuming ceteris paribus conditions), an increase in aggregate demand corresponds with an increase in the price level; conversely, a decrease in aggregate demand corresponds with a lower price level.