Which of the following is true regarding the aggregate demand curve?
A)It is vertical at the full-employment level of GDP.
B)It is horizontal when there is considerable unemployment in the economy.
C)It is downward-sloping because of the interest-rate,real balances,and foreign-trade effects.
D)It is downward-sloping because production costs decrease as real output increases.
E)It is upward-sloping because as output increases,aggregate expenditures increase.

Question

Quizplus · Accepted Answer

The aggregate demand curve is downward-sloping due to three main effects: the interest-rate effect, real balances effect, and foreign-trade effect. As the price level falls, interest rates decrease, causing investment and consumption spending to increase, thereby increasing aggregate demand. Similarly, as the price level falls, the real value of consumers' money balances increases, inspiring greater spending and thereby increasing aggregate demand. Finally, as the price level falls, the country's exports become less expensive and therefore more desirable to foreign buyers, boosting net exports and further lifting aggregate demand.

Which of the Following Is True Regarding the Aggregate Demand