The aggregate demand curve assumes that:

• A. the price level changes while all other factors affecting demand remain constant
• B. aggregate supply shifts in response to changes in aggregate demand
• C. the money supply automatically increases as the price level rises
• D. government spending and taxes are adjusted simultaneously with changes in the price level

Answer: (A)

Verified step by step guidance

1. Understand that the aggregate demand (AD) curve shows the relationship between the overall price level and the total quantity of goods and services demanded in the economy.
2. Recognize that when we analyze the AD curve, we typically hold other factors constant (ceteris paribus), such as government spending, taxes, and the money supply, to isolate the effect of price level changes.
3. Recall that movements along the AD curve occur due to changes in the price level, which affect consumption, investment, and net exports through mechanisms like the wealth effect, interest rate effect, and exchange rate effect.
4. Identify that shifts in the AD curve happen when factors other than the price level change, such as fiscal policy, monetary policy, or changes in consumer confidence, but these are not assumed in the basic AD curve analysis.
5. Conclude that the aggregate demand curve assumes the price level changes while all other factors affecting demand remain constant, which allows us to study how price level alone influences aggregate demand.