The aggregate demand curve generally slopes downward and to the right because, for any given money supply M a higher price level P causes a ______ real money supply M/P, which ______ the interest rate and ______ spending.
A) lower; raises; reduces
B) higher; lowers; increases
C) lower; lowers; increases
D) higher; raises; reduces

Question

Quizplus · Accepted Answer

A higher price level results in a lower real money supply (M/P decreases), which raises the interest rate. Higher interest rates, in turn, reduce spending, leading to the downward slope of the aggregate demand curve.

The Aggregate Demand Curve Generally Slopes Downward and to the Right