ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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vertical under conditions of full employment.
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horizontal when there is considerable unemployment in the economy.
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downsloping because of the interest-rate, real-balances, and foreign purchases effects.
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downsloping because production costs decrease as real output rises.
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Detailed explanation-1: -The aggregate demand curve is: downsloping because of the interest-rate, real-balances, and foreign purchases effects. The real-balances effect indicates that: a higher price level will decrease the real value of many financial assets and therefore reduce spending.
Detailed explanation-2: -The aggregate demand curve represents the total of consumption, investment, government purchases, and net exports at each price level in any period. It slopes downward because of the wealth effect on consumption, the interest rate effect on investment, and the international trade effect on net exports.
Detailed explanation-3: -Answer and Explanation: The real-balances, interest-rate, and foreign purchases effects all help explain (a) AD curve is down-sloping. A downward-sloping AD curve shows an inverse relationship between the price level and national income.
Detailed explanation-4: -The IS curve is downward sloping. When the interest rate falls, investment demand increases, and this increase causes a multiplier effect on consumption, so national income and product rises.
Detailed explanation-5: -The money demand curve is downward sloping because the economy’s overall interest rate affects the opportunity cost individuals face when holding money at different levels of the interest rate.