The aggregate demand curve shows the relationship between inflation the price level the money supply interest rates and production output demanded investment consumption. The aggregate demand curve is downward sloping because

a. an increase in the price level reduces real money holdings, which reduces the amount of expenditures.

b. a decrease in government spending reduces prices and makes consumption demand increase.

c. an increase in the price of a good causes a decrease in market demand for that good.

d. as income increases it causes an increase in the amount of planned expenditures.

Question

Erika

Business

26 October, 06:05

The aggregate demand curve shows the relationship between inflation the price level the money supply interest rates and production output demanded investment consumption. The aggregate demand curve is downward sloping because

a. an increase in the price level reduces real money holdings, which reduces the amount of expenditures.

b. a decrease in government spending reduces prices and makes consumption demand increase.

c. an increase in the price of a good causes a decrease in market demand for that good.

d. as income increases it causes an increase in the amount of planned expenditures.

+5

Answers (1)

Know the Answer?

Kiley Perkins · Answer 1

The correct answer is option a.

Explanation:

The aggregate demand curve shows the demand for goods and services by the economy as a whole. It comprises of consumption expenditure, government expenditure, investment expenditure, and net exports.

The aggregate demand curve in the short run is downward sloping because an increase in the price level reduces the real money holdings. It reduces purchasing power. So the amount of expenditures gets reduced as well.