The aggregate demand curve is
A) horizontal if full employment exists in the economy.
B) vertical if full employment exists in the economy.
C) downward sloping because of the real-balance, interest rate, and open economy effects.
D) downward sloping because more goods are produced as per unit cost of producing each item falls.

Question

Quizplus · Accepted Answer

The aggregate demand curve is downward sloping because of the real-balance, interest rate, and open economy effects. As the price level falls, the real value of money increases, leading to an increase in spending. Lower interest rates also spur spending and investment, while a decrease in the price level makes exports more competitive, leading to an increase in net exports. Therefore, the aggregate demand curve slopes downward due to these factors.

The Aggregate Demand Curve Is