Plotting the AD curve Y = C(Y − T) + I(r) + G + NX (with the overall price level on the vertical axis and output on the horizontal axis), it slopes _________ because a rise in the overall price level leads to a decrease in ________ .

Question

BlackTom AI · Accepted Answer

Aggregate demand slopes downward because a higher overall price level reduces real money balances and real wealth, which lowers consumption and thus equilibrium output.

1. Relevant knowledge points and concepts
- The AD schedule is Y = C(Y − T) + I(r) + G + NX. C depends on disposable income and real wealth/real balances; I depends negatively on the real interest rate r; NX depends negatively on the domestic price level relative to foreign prices. The overall price level P does not directly change G or taxes T (these are policy/exogenous in the short run), but it affects real money balances (M/P) and real wealth, which in turn affect consumption and interest rates.

2. Step-by-step reasoning
- Write AD emphasizing P-dependence: Y = C(Y − T, M/P) + I(r(M/P)) + G + NX(P).
- Raise P → real money balances M/P fall.
- Lower M/P reduces households’ real wealth and liquidity, decreasing consumption C(Y − T, M/P).
- Lower M/P also tends to push up the nominal/real interest rate r (via money market), which reduces investment I(r), further lowering AD.
- A higher P also makes domestic goods relatively more expensive to foreigners, reducing NX, which further reduces AD.
- The dominant and immediate channel emphasized in the question is the reduction in consumption due to lower real balances/wealth.

3. Intermediate logical steps (algebraic/causal)
- Increase P ⇒ M/P ↓
- M/P ↓ ⇒ C(·) ↓ (households feel poorer, spend less)
- Also: M/P ↓ ⇒ r ↑ ⇒ I(r) ↓
- Result: Y demanded at that price level falls ⇒ AD slopes downward.

4. Why the correct answer is correct
- The question asks why AD slopes in a particular direction and names the specific component affected. The primary direct channel from P to spending is via real balances and consumption: higher P lowers consumption, so AD slopes downward.

5. Why the other options are incorrect
- "Upward; investment": AD does not slope upward; higher P reduces demand components, not increase them. Investment falls (not rises) when r rises.
- "Upward; government spending": G is exogenous in the short run and does not rise with P; AD is not upward-sloping.
- "Downward; government spending": while AD is downward-sloping, government spending G is not what falls when P rises (G is policy-determined), so this pairing is wrong.

6. Conclusion
- Therefore the correct response is "Downward; consumption," which matches the provided answer.

Plotting the AD curve Y = C(Y − T) + I(r) + G + NX (with the overall price level on the vertical axis and output on the horizontal axis), it slopes _ because a rise in the overall price level leads to a decrease in .单项选择题

类似问题

A decrease in real GDP in the United States relative to foreign countries will decrease U.S. net exports and shift the aggregate demand curve to the left.

A decrease in the price level leads to a rightward shift in the aggregate demand curve because it increases consumption, investment, and net exports.

What would lower aggregate demand (AD)?

Why is aggregate demand (AD) downward-sloping?

What would shift aggregate demand (AD) to the right?

What would lower aggregate demand (AD)?

Why is aggregate demand (AD) downward-sloping?

What would shift aggregate demand (AD) to the right?

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Plotting the AD curve Y = C(Y − T) + I(r) + G + NX (with the overall price level on the vertical axis and output on the horizontal axis), it slopes _________ because a rise in the overall price level leads to a decrease in ________ .单项选择题

类似问题

A decrease in real GDP in the United States relative to foreign countries will decrease U.S. net exports and shift the aggregate demand curve to the left.

A decrease in the price level leads to a rightward shift in the aggregate demand curve because it increases consumption, investment, and net exports.

What would lower aggregate demand (AD)?

Why is aggregate demand (AD) downward-sloping?

What would shift aggregate demand (AD) to the right?

What would lower aggregate demand (AD)?

Why is aggregate demand (AD) downward-sloping?

What would shift aggregate demand (AD) to the right?

更多留学生实用工具

希望你的学习变得更简单

Plotting the AD curve Y = C(Y − T) + I(r) + G + NX (with the overall price level on the vertical axis and output on the horizontal axis), it slopes _ because a rise in the overall price level leads to a decrease in .单项选择题