Answer to Question #338159 in Macroeconomics for Yaya

Question

What is the reason for the downward slope of the AD curve?

a. 

As the price level increases, aggregate output and income increase.

a. As the price level increases, aggregate output and income increase.

b. 

As the price level decreases, the central bank will reduce the interest rate leading to increase in investment and therefore aggregate demand and output also increase.

b. As the price level decreases, the central bank will reduce the interest rate leading to increase in investment and therefore aggregate demand and output also increase.

c. 

Decrease in government spending and increase in tax.

c. Decrease in government spending and increase in tax.

d. 

An increase in autonomous consumption.

Answer 1

b. 

As the price level decreases, the central bank will reduce the interest rate leading to increase in investment and therefore aggregate demand and output also increase.