According to new classical economics, aggregate demand in the economy increases as the level of prices decreases because of the:
A) wealth effect.
B) interest rate effect.
C) foreign trade effect.
D) all of the above.

Question

Quizplus · Accepted Answer

All of the above effects explain why aggregate demand might increase as the level of prices decreases according to new classical economics. The wealth effect suggests that as prices decrease, the real value of money increases, leading to higher consumer spending. The interest rate effect posits that lower prices lead to lower interest rates, which stimulates investment and spending. The foreign trade effect indicates that lower prices make domestic goods more competitive abroad, increasing exports.

According to New Classical Economics, Aggregate Demand in the Economy