Which of the following is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States?
A)the wealth effect
B)the interest-rate effect
C)the exchange-rate effect
D)the real-wage effect

Question

Quizplus · Accepted Answer

The exchange-rate effect is likely more important for explaining the slope of the aggregate-demand curve of a small economy than it is for the United States because small economies are more open and rely heavily on international trade. Changes in the exchange rate can have a significant impact on the prices of imports and exports, affecting overall aggregate demand in the economy. The other options listed are still relevant for explaining the slope of the aggregate-demand curve, but they may have less significance for a small economy compared to the US.

Which of the Following Is Likely More Important for Explaining