Figure 34-2.On the left-hand graph,MS represents the supply of money and MD represents the demand for money;on the right-hand graph,AD represents aggregate demand.The usual quantities are measured along the axes of both graphs.
.
-Refer to Figure 34-2.If the graphs apply to an economy such as the U.S.economy,then the slope of the AD curve is primarily attributable to the
A)wealth effect.
B)interest-rate effect.
C)exchange-rate effect.
D)Fisher effect.

Question

Figure 34-2.On the left-hand graph,MS represents the supply of money and MD represents the demand for money;on the right-hand graph,AD represents aggregate demand.The usual quantities are measured along the axes of both graphs.
. 
-Refer to Figure 34-2.If the graphs apply to an economy such as the U.S.economy,then the slope of the AD curve is primarily attributable to the
A)wealth effect. 
B)interest-rate effect. 
C)exchange-rate effect. 
D)Fisher effect.

Quizplus · Accepted Answer

The slope of the AD curve is primarily attributable to the interest-rate effect, which shows the inverse relationship between the price level and the interest rate. As the price level increases, people demand more money to make transactions, causing an increase in the interest rate, which leads to a decrease in investment and consumption spending, reducing aggregate demand.