Classical vs. Keynesian Macroeconomics

Question

According to the Keynesian view, if this economy shifts from AD1 to AD2, let's say due to a large decline in investment spending by businesses, then:

A) the price level will increase, but real GDP will decrease.

B) the GDP will increase, but the price level will not change.

C) the price level will increase, but real GDP will not change.

D) both the GDP and the price level will decrease.

Answer 1

D) both the GDP and the price level will decrease.

fall in investment will lead to left-ward shift of AD thus toward new equilibrium GDP over old SRAS.