- CFA Exams
- CFA Exam: Level I 2021
- Study Session 5. Economics (2)
- Reading 16. Monetary and Fiscal Policy
- Subject 2. The Demand for and Supply of Money

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**CFA Practice Question**

Refer to the graph below. Monetary policy that shifts the AD curve from AD0 to AD1 but does not affect the price level decreases ______.

B. both real and nominal output

C. real output but not nominal output

A. nominal output but not real output

B. both real and nominal output

C. real output but not nominal output

Correct Answer: B

Since the price level is fixed, a shift of the aggregate demand curve to the left must reduce both real and nominal output.

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**User Contributed Comments**
5

User |
Comment |
---|---|

danlan |
A horizontal shift changes both nominal and real output, a vertical shift changes nominal but not real output. |

achu |
Danlan: I agree on the horizontal shift. Vertical shift, I'm not sure I agree. |

cleopatraliao |
real output=nominal output/price level. From the graph real output decreases holding the price level constant nominal output also decreases:) |

syazwan21 |
achu: Maybe it could be the other way around - vertical shift changes real but not nominal output. |

Antoinepo |
Nominal Output = Real output * Index ,therefore if real output decrease, nominal will also |