Why does the economy’s aggregate demand curve have a negative slope?
What will be an ideal response?
At higher price levels, the quantity of bank reserves demanded is greater. If the Fed holds the supply schedule fixed, a higher price level must therefore lead to higher interest rates. Because higher interest rates discourage investment, aggregate quantity demanded is lower when the price level is higher—that is, the aggregate demand curve has a negative slope.
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If the government saved during an economic boom by increasing taxes or decreasing spending, this would be:
A. contractionary fiscal policy. B. expansionary monetary policy. C. expansionary fiscal policy. D. contractionary monetary policy.
Jorge is the proud owner of The Peppered Speakeasy. When the economy collapsed, he had to lay off 20 percent of his employees. They must look for new work and are considered
A. employed. B. unemployed. C. out of the labor force. D. unemployable.