The aggregate demand curve shows that, if other factors are held constant
A) higher price levels will result in lower total planned spending.
B) higher price levels will result in higher total planned spending.
C) higher price levels will result in lower interest rates.
D) lower price levels will result in inflationary conditions.

Question

Quizplus · Accepted Answer

The aggregate demand curve is downward sloping because it shows the relationship between the price level and the total planned spending (i.e. aggregate expenditure) in the economy. If the price level increases, households and firms will have to spend more on goods and services, which will lead to a decrease in their purchasing power and lower their total planned spending. Therefore, higher price levels will result in lower total planned spending.

The Aggregate Demand Curve Shows That, If Other Factors Are