Which of the following explains why the aggregate demand schedule is downward sloping?
A)the real-balances effect
B)the interest rate effect
C)the foreign trade effect
D)all of these

Question

Quizplus · Accepted Answer

The downward slope of the aggregate demand schedule can be explained by all three effects: the real-balances effect, the interest rate effect, and the foreign trade effect. The real-balances effect suggests that as price levels decrease, the purchasing power of consumers' money increases, leading to an increase in consumer spending. The interest rate effect suggests that as price levels decrease, interest rates decrease, which encourages borrowing and investment spending. The foreign trade effect suggests that as price levels decrease, the demand for domestic goods increases relative to foreign goods, leading to an increase in net exports. Together, these effects create a downward sloping aggregate demand schedule.

Which of the Following Explains Why the Aggregate Demand Schedule