Which of the following is used to explain why the AD curve slopes downward?
A)The interest rate effect.
B)The cost effect.
C)The profit effect.
D)The laissez faire effect.

Question

Quizplus · Accepted Answer

The interest rate effect is used to explain why the AD curve slopes downward. When prices increase, people demand more money to buy goods and services, which increases the demand for money and raises interest rates. Higher interest rates, in turn, make borrowing more expensive and reduce consumer and investment spending, leading to a decrease in aggregate demand.

Which of the Following Is Used to Explain Why the AD