The aggregate demand curve is:
A)vertical if full employment exists.
B)horizontal when there is considerable unemployment in the economy.
C)downward sloping because of the interest-rate, real balances, and foreign trade effects.
D)downward sloping because production costs decrease as real output increases.

Question

Quizplus · Accepted Answer

The aggregate demand curve is downward sloping due to the interest-rate effect, real balances effect, and foreign trade effect, which all influence the quantity of goods and services demanded at various price levels. It is not vertical when full employment exists, nor is it horizontal when there is considerable unemployment. It is also not sloping due to production costs.

The Aggregate Demand Curve Is