Which of the following helps explain why the AD curve is downward sloping?
A) If consumers and businesses expect higher prices in the future, they will purchase more today, increasing investment and consumption expenditure.
B) When the price level falls, the real value of wealth rises, so people save less and consume more.
C) If the exchange rate falls and the price level does not change, exports increase and imports decrease.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

When the price level falls, the real value of wealth rises, so people save less and consume more. This leads to an increase in demand and a shift in the aggregate demand curve to the right, resulting in a downward sloping AD curve. Choices A and C are incorrect as they do not specifically address the downward sloping nature of the AD curve. Choice D is incorrect as there is a correct answer.

Which of the Following Helps Explain Why the AD Curve