Consider the following sequence of events: price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑
⇒ quantity of goods and services demanded ↓
Τhis sequence explains why the
A) money-supply curve is vertical.
B) aggregate-demand curve shifts leftward in response to a monetary injection.
C) aggregate-demand curve shifts rightward in response to a monetary injection.
D) aggregate-demand curve slopes downward.

Question

Quizplus · Accepted Answer

The sequence of events describes how an increase in the price level causes an increase in the demand for money, which leads to an increase in the equilibrium interest rate. This higher interest rate decreases the quantity of goods and services demanded, causing the aggregate-demand curve to slope downward. Therefore, the correct answer is D.

Consider the Following Sequence of Events: Price Level ↑ ⇒