What is the main reason the aggregate-demand curve slopes downward?
A) As the price level increases, money demand increases, interest rates increase, and investment decreases.
B) As the price level increases, money demand increases, interest rates decrease, and investment increases.
C) As the price level decreases, money demand increases, interest rates increase, and investment increases.
D) As the price level decreases, money demand increases, interest rates decrease, and investment decreases.

Question

Quizplus · Accepted Answer

As the price level increases, the demand for money increases because people need more money to purchase the same amount of goods and services. As a result, interest rates increase, which makes borrowing more expensive for businesses and consumers. This decrease in investment and consumption reduces aggregate demand, leading to a downward-sloping curve.

What Is the Main Reason the Aggregate-Demand Curve Slopes Downward