Question

If an aggregate demand curve is drawn with real GDP (^) along the horizontal axis and the price level (^) along the vertical axis, using the quantity theory of money as a theory of aggregate demand, this curve slopes ____ to the right and gets ____ as it moves farther to the right.

A. Upward, steeper
B. Downward, steeper
C. Upward, flatter
D. Downward, flatter

Answer 1

The aggregate demand curve slopes downward to the right and gets steeper as it moves farther to the right. The correct option is B.

Step-by-step explanation:

Based on the quantity theory of money and its influence on aggregate demand (AD), if an aggregate demand curve is drawn with real GDP along the horizontal axis and the price level along the vertical axis, the correct answer would be B. Downward, steeper.

The AD curve slopes downward to the right, meaning that as the price level increases, the quantity of total spending decreases. This is due to the wealth effect, interest rate effect, and foreign price effect.

As it moves farther to the right, it tends to get steeper due to the underlying components of aggregate demand: consumption spending (C), investment spending (I), government spending (G), and net exports (X - M).