The aggregate demand curve
A) is upward sloping because a higher price level is necessary to make production profitable as production costs rise.
B) is downward sloping because production costs decline as real GDP increases.
C) shows the amount of expenditures required to induce the production of each possible level of real GDP.
D) shows the amount of real GDP that will be demanded at each possible price level.

Question

Quizplus · Accepted Answer

The aggregate demand curve shows the amount of real GDP that will be demanded at each possible price level. This is because as the price level decreases, the purchasing power of consumers increases, leading to an increase in consumption, investment, and net exports, which in turn increases the demand for goods and services and leads to an increase in real GDP. Conversely, as the price level increases, the purchasing power of consumers decreases, leading to a decrease in consumption, investment, and net exports, which in turn decreases the demand for goods and services and leads to a decrease in real GDP. Therefore, the aggregate demand curve is downward sloping. Choices A, B, and C do not accurately describe the slope or purpose of the aggregate demand curve.

The Aggregate Demand Curve