For a fixed money supply, the aggregate demand curve slopes downward because at a lower price level real money balances are ______, generating a ______ quantity of output demanded.
A) higher; greater
B) higher; smaller
C) lower; greater
D) lower; smaller

Question

Quizplus · Accepted Answer

At a lower price level, the real value of money balances increases because each unit of currency buys more goods and services. This increase in real money balances makes consumers and businesses feel wealthier, which tends to increase spending and thus the quantity of output demanded.

For a Fixed Money Supply, the Aggregate Demand Curve Slopes