If the aggregate demand curve (AD) presented in lectures is constructed by allowing the price level to vary in the IS/LM model with rate-setting monetary policy (i.e. an interest rate rule), then, ceteris paribusGroup of answer choicesthe price level and real income will not be inversely related because the rate of interest is kept constant under rate-setting monetary policylower price levels will be associated with higher levels of investment expenditurea rise in the target price level will lead to a leftward shift of the aggregate demand curvehigher price levels are associated with lower rates of interest and thus lower levels of income

When the central bank controls the interest rate, the aggregate demand (AD) curve is downward sloping because:Group of answer choicesa reduction in the money supply (M) will cause an increase in the interest rate, a reduction in investment, and a reduction in output.a reduction in the aggregate price level (P) will cause the central bank to reduce the interest rate and thus increase output.a reduction in P will cause an increase in the real wage, a reduction in employment, and a reduction in output.as P increases, goods and services become relatively more expensive and individuals respond by reducing the quantity demanded of goods and services.

True or false: the aggregate demand curve demonstrates an inverse relationship between the price level and real GDP.True false question.TrueFalse

Which of the following will result in a rightward shift of the aggregate demand curve?ResponsesAn increase in the income tax rateAn increase in the income tax rateAn increase in exportsAn increase in exportsA decrease in the price levelA decrease in the price levelA decrease in household incomeA decrease in household incomeA decrease in government spending

Along the horizontal range of the aggregate supply curve, an increase in the aggregate demand curve will increase:Group of answer choicesboth the price level and real GDP.only real GDP.only the price level.real GDP and reduce the price level.

Multiple Choice QuestionThe aggregate demand curve slopes downward because it reflects:Multiple choice question.a direct relationship between the price level and the amount of of real output demandedan inverse relationship between the price level and the amount of real output demanded