Which of the following best explains the slope of the aggregate demand curve?
A)The aggregate demand curve slopes downward for the same reasons that market demand curves slope downward.
B)The aggregate demand curve is vertical in the long run because people can only consume a certain maximum quantity.
C)The aggregate demand curve is downward sloping because it shows an inverse relation between the price level and the quantity of all goods and services demanded.
D)The aggregate demand curve is downward sloping because the more people wish to consume, the lower is the price.

Question

Quizplus · Accepted Answer

The aggregate demand curve shows an inverse relationship between the price level and the quantity of all goods and services demanded because as the price level for goods and services increases, people will demand fewer goods and services. This is due to the fact that they become more expensive relative to people's incomes, and so people cannot afford to purchase as much as they might have when prices were lower. This relationship holds true for all goods and services in the entire economy, hence the aggregate demand curve slopes downward. Option A is a true statement but doesn't fully explain the slope of the AD curve. Option B is incorrect because the AD curve is downward sloping and not vertical in the long run, and people's consumption is not the only factor affecting the aggregate demand. Option D is incorrect because the relationship between price and quantity demanded is inverse and not inverse.

Which of the Following Best Explains the Slope of the Aggregate