CFA Practice Question

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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 ______.

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.

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
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