AD-AS Model Directly Reveals Price Level Shifts

Steps:

• Aggregate demand (AD) curve shows total spending at different price levels.
• Aggregate supply (AS) curve shows total output at different price levels.
• Equilibrium intersection determines overall price level and real GDP.
• Shifts in AD or AS directly change the equilibrium price level on the graph.

Why B is correct:

• The vertical axis of the AD-AS model explicitly measures the price level, so equilibrium shifts show its changes via the intersection point.

Why the others are wrong:

• A: Nominal income equals price level times real output, derived indirectly from model equilibrium.
• C: Unemployment links to output via Okun's law, requiring additional calculation beyond AD-AS.
• D: Wage level affects AS shifts but is not plotted or determined directly in the model.

Final answer: B