Question

Deriving the aggregate demand curve from the quantity equation of money allows the aggregate demand curve to be written as P = MV / Y. For V = 5 and M = 600, P = 3,000 / Y. If P = 1, then Y = 3,000, and if P = 3, then Y = _____, thereby demonstrating the _____ slope.

Answer 1

The correct answer is: 1,000; Negative slope

Step-by-step explanation:

The aggregate demand curve can be written as
`P =(MV)/(Y)`

Here, V = 5 and M = 600, so P will be

P =
`(600*5)/(Y)`

P =
`(3,000)/(Y)`

If P = 1,

1 =
`(3,000)/(Y)`

Y = 3000

If P = 2,

2 =
`(3,000)/(Y)`

2Y = 3,000

Y = 1,500

If P = 3,

3 =
`(3,000)/(Y)`

3Y = 3,000

Y = 1,000

We see that as the value of P is increasing, the value of Y is declining. This means that P and Y are negatively related and have a negative slope.