The aggregate demand curve isA) vertical if full employment exists.B) horizontal when there is considerable unemployment in the economy.C) downward sloping because of the interest rate,wealth or real balances,and foreign-purchases effects.D) downward sloping because production costs decrease as real domestic output increases.

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Chucks Benjamin · Accepted Answer

Final Answer : C, Explanation :  The aggregate demand curve is downward sloping because of the interest rate effect (when lower price levels lead to a lower demand for money and lower interest rates, promoting greater spending), wealth or real balances effect (when lower price levels raise the real value of households' money holdings, thereby increasing their wealth), and foreign-purchases effect (when lower price levels reduce the demand for domestic goods and services, thus increasing exports and decreasing imports). Option A is incorrect because it assumes that there is no relationship between output and prices, which is not the case. Option B is incorrect because it assumes that unemployment is the sole determinant of the aggregate demand curve. Option D is also incorrect because a decrease in production costs would shift the aggregate supply curve, not the aggregate demand curve.

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