Question

Deriving the aggregate demand curve from the quantity equation of money allows the aggregate demand curve to be written as P = MV / Y. For V = 5 and M = 600, P = 3,000 / Y. If P = 1, then Y = 3,000, and if P = 3, then Y = _____, thereby demonstrating the _____ slope.

Answer 1

Answer:

The correct answer is: 1,000; Negative slope

Explanation:

The aggregate demand curve can be written as $P =\frac{MV}{Y}$

Here,  V = 5 and M = 600, so P will be

P = $\frac{600\times5}{Y}$

P = $\frac{3,000}{Y}$

If P = 1,

1 = $\frac{3,000}{Y}$

Y = 3000

If P = 2,

2 = $\frac{3,000}{Y}$

2Y = 3,000

Y = 1,500

If P = 3,

3 = $\frac{3,000}{Y}$

3Y = 3,000

Y = 1,000

We see that as the value of P is increasing, the value of Y is declining. This means that P and Y are negatively related and have a negative slope.