According to new classical economics, the aggregate demand curve for an economy is downward sloping because of the:
A) wealth effect.
B) interest rate effect.
C) foreign trade effect.
D) all of the above.

Question

Quizplus · Accepted Answer

The aggregate demand curve is downward sloping due to the wealth effect (people feel wealthier and spend more when prices fall), the interest rate effect (lower prices lead to lower interest rates, which encourages borrowing and spending), and the foreign trade effect (lower prices increase the competitiveness of a country's goods abroad).

According to New Classical Economics, the Aggregate Demand Curve for an Economy