The aggregate demand curve has a negative slope because hous

The aggregate demand curve has a negative slope, because households and businesses respond to an increase in _______ by reducing their expenditures. A. the inflation rate b. output C. the real interest rate d. all of the above e. none of the above

Solution

A. The inflation rate.

The inflation simply the rising of the price levels so when the price rises households and businesses reduce their expenditure. So it is a negative relationship and it is depicted by the neagtively sloped demand curve. At lower levels of price level there is more purchasing power so the people will increase the expenditures and on the other hand if there is higher price level the purchasing power will be less so they reduce their expendituires.