b) aggregate demand curve

c) the AD curve

y-axis = average price level

x-axis = real GDP

gradient = aggregate demand, constant + negative

gradient is negative because of

• interest rate effect = higher AP → higher interest rate → less investment + less consumption (incentive to save) → lower real GDP

• income effect = higher AP → less purchasing power → less consumption → lower real GDP

• exchange rate effect = higher AP → higher interest rate → higher exchange rate → less attractive goods and services to foreign firms → less exports → lower real GDP