Because increases in inflation reduce aggregate spending and short-run equilibrium output:
A) the short-run aggregate supply line is downward sloping.
B) the aggregate demand curve is horizontal.
C) the aggregate demand curve is downward sloping.
D) the aggregate demand curve is upward sloping.

Question

Quizplus · Accepted Answer

The AD curve slopes downward, showing the inverse relationship between aggregate spending and the inflation rate - higher inflation rates cause consumption, investment and net exports to fall.

Because Increases in Inflation Reduce Aggregate Spending and Short-Run Equilibrium