ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -AD curve is upward sloping owing to increasing income in the economy as the income increases, the expenditure by the people also increases which leads to rising AD. Therefore, income and AD has a positive relationship between them.

Detailed explanation-2: -Just like in an aggregate supply curve, the horizontal axis shows real GDP and the vertical axis shows price level. But there’s a big difference in the shape of the AD curve-it slopes down. This downward slope indicates that increases in the price level of outputs lead to a lower quantity of total spending.

Detailed explanation-3: -When the income of the consumer’s increases they purchase more goods and vice-versa. Thus, income and demand have a directly proportional relationship. This implies that the demand curve slopes upward from left to right. This holds true in case of superior or normal goods only.

Detailed explanation-4: -Why does the AD curve have a negative slope? (i) When P rises, people substitute away from more expensive goods and services so AD decreases. (ii) When P rises, G decreases which means AD decreases. (iii) When P rises, the supply of money shifts left so r falls so AD decreases.

Detailed explanation-5: -Notice that the aggregate demand curve, AD, like the demand curves for individual goods, is downward sloping, implying that there is an inverse relationship between the price level and the quantity demanded of real GDP.