The wealth effect, the interest rate effect, and the international trade effect account for the:
A)positive slope of the short-run aggregate supply curve.
B)the shape of the long-run aggregate supply curve.
C)positive slope of the aggregate demand curve.
D)negative slope of the aggregate demand curve.
E)negative slope of the short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

The wealth effect, interest rate effect, and international trade effect explain why the aggregate demand curve slopes downward. As the price level decreases, real wealth increases, interest rates fall, and net exports rise, leading to higher quantity demanded of goods and services.

The Wealth Effect, the Interest Rate Effect, and the International