QUESTION ONE [30]
“The aggregate demand curve, like the demand curves for individual goods, is downward sloping, implying that there is an inverse relationship between the price level and the quantity demanded of real gross domestic product.”
In terms of the above statement, examine the three (3) reasons for the downward-sloping shape of the aggregate demand curve.
QUESTION TWO [20]
“Monetary policy is the macroeconomic policy laid down by the central bank of an economy.” In terms of the above statement, explain how monetary policy can be used to combat inflation.
Answers to Above Questions on Economics
Answer 1: An analysis of the aggregate demand curve indicates that it is downward sloping and there are certain important reasons for such downward sloping of the demand curve. The most important reasons identified in the literature are the wealth effect, the interest rate effect, and the international trade effect.
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