The AD Curve ________.
A)indicates the level of aggregate output corresponding to different goods-market-clearing levels of the interest rate
B)is downward sloping,because with higher inflation comes higher interest rates and lower spending,so equilibrium aggregate output declines
C)explains how inflation affects output in the short run
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The AD (Aggregate Demand) Curve is downward sloping and represents the relationship between the overall price level and the level of aggregate output (or real GDP) demanded in the economy. It encompasses all the points mentioned: it indicates the level of aggregate output corresponding to different levels of the interest rate (as interest rates affect spending decisions), explains the inverse relationship between the price level (or inflation) and aggregate output (as higher inflation typically leads to higher interest rates, which in turn reduce spending), and thus, it also explains how inflation affects output in the short run.