For the U.S.economy,which of the following is the most important reason for the downward slope of the aggregate-demand curve?
A)the wealth effect
B)the interest-rate effect
C)the exchange-rate effect
D)the real-wage effect

Question

Quizplus · Accepted Answer

The interest-rate effect is the most important reason for the downward slope of the aggregate-demand curve in the U.S. economy. As the price level decreases, people need less money to purchase goods and services, and so they are willing to lend more of their excess cash balances. This increase in loanable funds leads to a decrease in the interest rate, which in turn leads to an increase in investment spending, thereby increasing aggregate demand.

For the US