Ceteris Paribus in Aggregate Demand Curve

Steps:

• Define aggregate demand (AD) as total spending on goods and services at different price levels.
• Note that the AD curve slopes downward due to wealth, interest rate, and exchange rate effects.
• Identify ceteris paribus: factors like money supply, fiscal policy, and expectations are held constant to isolate price level's impact.
• Confirm money supply is fixed, as its changes shift the entire AD curve.

Why D is correct:

• The AD curve assumes constant money supply per the quantity theory of money (MV = PY), where fixed M isolates price level (P) effects on real output (Y).

Why the others are wrong:

• A: Government tax revenue is fiscal policy; changes shift AD, not held constant.
• B: Interest rates vary along the curve as higher prices raise money demand, increasing rates.
• C: Unemployment level is a macroeconomic outcome affected by AD shifts, not assumed constant.

Final answer: D