An AD curve is:
A) vertical if full employment exists.
B) horizontal when there is considerable unemployment in the economy.
C) downsloping because of the interest-rate effect, wealth (or real balances) effect, and foreign trade (or substitution) effects.
D) downsloping because production costs decrease as real output increases.

Question

Quizplus · Accepted Answer

The AD curve is downsloping due to the interest-rate effect, wealth effect, and foreign trade effect, which influence consumption, investment, and net exports as the price level changes.

An AD Curve Is