Suppose that the economy is initially at the natural level of real GDP that corresponds to Y 1 in Figure 2 . Associated with this level of real GDP is an aggregate expenditure curve, AE 1 . Now, suppose that autonomous expenditure declines, from A 1 to A 3 , causing the AE curve to shift downward from AE 1 to AE 3 . This decline in autonomous expenditure is also represented by a reduction in aggregate demand from AD 1 to AD 2 . At the same price level, P 1 , equilibrium real GDP has fallen from Y 1 to Y 3 . However, the intersection of the SAS and AD 2 curves is at the lower price level, P 2 , implying that the price level falls. The fall in the price level means that the aggregate expenditure curve will not fall all the way to AE 3 but will instead fall only to AE 2 . Therefore, the new level of equilibrium real GDP is at Y 2 , which lies below the natural level,
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