One Explanation for the Slope of the Aggregate Demand Curve

question 20

Multiple Choice

One explanation for the slope of the aggregate demand curve is that:

• A)nominal income falls and so does the demand for goods and services as prices rise.
• B)falling prices make people feel poorer and reduce spending.
• C)the government spends less to drive the price level back to normal as prices rise.
• D)businesses increase spending when inflation is high and rising.
• E)domestic goods become more expensive relative to foreign goods when prices rise,reducing exports.

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Definitions:

Actual Output

Actual output refers to the real GDP or the total value of all goods and services produced in an economy at a given time, contrasting with potential output.

Expected Price Level

The anticipation or forecast of future prices across an economy, affecting consumer and business decisions.

Long-Term Contracts

Agreements that extend over a significant period of time, often involving commitments to buy or sell goods or services or to provide employment.

Recessionary Gaps

Situations where an economy's actual output is less than its potential output, often characterized by unemployment and underutilized resources.