Question 34

The aggregate demand curve slopes downward and to the right.

The aggregate demand curve is characterized by a downward slope, indicating that as the price level decreases, the quantity of goods and services demanded increases, and vice versa.

A) It is horizontal at the current level of wages

This statement is incorrect as the aggregate demand curve is not horizontal. A horizontal curve would imply that demand does not change with price levels, which contradicts the fundamental principle that demand typically decreases as prices rise.

B) It is equal to full-employment GDP

This choice is also incorrect. While full-employment GDP represents the maximum sustainable output of an economy, the aggregate demand curve reflects the total demand at various price levels, not a fixed level of GDP.

C) It slopes downward and to the right

This statement accurately describes the aggregate demand curve. The downward slope illustrates the inverse relationship between the price level and the quantity of goods demanded, which is a key concept in understanding aggregate demand.

D) It shows a positive relationship between price level and real GDP

This option is incorrect. The aggregate demand curve actually shows a negative relationship between price level and real GDP, meaning that higher price levels lead to lower quantities of real GDP demanded.

Conclusion

In summary, the correct statement regarding the aggregate demand curve is that it slopes downward and to the right, which reflects the inverse relationship between price levels and the quantity of goods and services demanded. All other options misrepresent the characteristics of the aggregate demand curve, failing to capture its essential downward-sloping nature.