For a Fixed Money Supply, the Aggregate Demand Curve Slopes

question 102

Multiple Choice

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

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Definitions:

Investment

The act of allocating resources, usually capital, to generate a return, which can include ventures in stocks, bonds, or physical assets like real estate.

Contractionary Monetary Policy

A monetary policy strategy used by central banks to reduce inflation and cool an overheating economy, typically involving increasing interest rates and reducing the money supply.

Discount Rate

The fee in the form of an interest rate that commercial banks and similar depository organizations incur when they obtain loans from the lending establishment of their regional Federal Reserve Bank.

Required Reserve Ratio

The percentage of deposits that banks must hold in reserve and not lend out to ensure liquidity.