The Best Explanation of Why the Aggregate Demand Curve Has

question 19

Multiple Choice

The best explanation of why the aggregate demand curve has a negative slope is that

• A) at a higher price level households cut back on their spending on goods and services.
• B) at a higher price level business firms wish to produce more goods and services.
• C) a higher price level results in lower real money balances and a higher real interest rate.
• D) a higher price level results in less government spending on transfers, such as unemployment insurance and social security payments.

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Definitions:

Marginal Product Data

Information that shows how the addition of a single unit of a factor of production, such as labor or capital, affects total output.

Competitive Market

A market structure characterized by a large number of buyers and sellers, free entry and exit, and a product for which each supplier's offerings are perfectly substitutable by the consumers.

Profit-Maximizing Rule

A principle stating that firms achieve maximum profit when they produce goods or services to the point where marginal cost equals marginal revenue.

Cost-Minimization Rule

A principle in economics that suggests a firm should produce any given output at the lowest possible cost.