If the money wealth, interest rate, and international effects reduce the quantity of aggregate demand by 5 percent when the price rises by 10 percent and the multiplier is 3, then the slope of the aggregate demand curve is:
A)−1/2.
B)−2/3.
C)−2.
D)−3.

Question

Quizplus · Accepted Answer

The slope of the aggregate demand curve can be calculated using the formula: slope = change in quantity / change in price. Given that the quantity of aggregate demand decreases by 5% for a 10% increase in price, and considering the multiplier effect of 3, the initial impact of -5% is amplified to -15% (5% * 3). Therefore, the slope is -15% / 10% = -3/2 or -1.5, which simplifies to -1.5/1. Since none of the options exactly match -1.5, the closest option based on the given scenario and the multiplier effect is B) -2/3, assuming a misunderstanding in the application of the multiplier effect in the explanation. The correct interpretation should directly apply the given changes without incorrectly amplifying the effect, leading to a slope calculation based on the initial change without multiplier adjustment.

If the Money Wealth, Interest Rate, and International Effects Reduce