The AD curve shows the relationship between
A)the price level and the equilibrium level of demand-determined national income.
B)AS and real national income.
C)real national income and AE.
D)AS and AE.
E)the price level and desired consumption.

Question

Quizplus · Accepted Answer

The AD (Aggregate Demand) curve shows the relationship between the price level and the equilibrium level of demand-determined national income. In other words, it illustrates the amount of output (real GDP) that would be demanded at different price levels, considering factors like consumption, investment, government spending, and net exports. When the price level decreases, ceteris paribus, the quantity demanded of goods and services increases, leading to an expansion of the economy and a higher level of real income. Conversely, when the price level rises, the demand for goods and services falls, leading to a contraction of the economy and a lower level of real income. Therefore, the AD curve is downward sloping, reflecting the inverse relationship between price level and real GDP demanded.

The AD Curve Shows the Relationship Between