The aggregate demand curve slopes downward because
A)when inflation is lower, the Fed will lower the interest rate and potential GDP will increase.
B)when inflation is lower, consumers want to buy more goods and services.
C)when inflation is lower, the real interest rate is higher and firms will invest less.
D)when inflation is lower, the Fed will lower the interest rate and spending will increase.
E)when prices are lower, consumers want to buy more goods and services.

Question

Quizplus · Accepted Answer

When inflation is lower, the Fed will lower the interest rate to stimulate spending and investment, increasing the quantity of goods and services demanded. This is represented by a downward sloping aggregate demand curve, where a lower price level leads to a higher quantity of goods and services demanded, ceteris paribus.

The Aggregate Demand Curve Slopes Downward Because