The aggregate demand curve is downward sloping for all of the following reasons EXCEPT for the:
A)response of the Fed to inflation through its policy reaction function.
B)effect of inflation on the value of money.
C)impact of inflation on the consumer price index (CPI).
D)distributional impact of inflation on spending.

Question

Quizplus · Accepted Answer

When the inflation rate increases, the Fed responds by raising the real interest rate per its reaction function, which reduces consumption and investment. Additional reasons for the downward slope of the AD curve include the effect of inflation on the real value of money held by households and businesses and distributional effects.

The Aggregate Demand Curve Is Downward Sloping for All of the Following