Why,in part,does the interest rate effect suggest that the aggregate demand curve has a negative slope?
A)Changes in the price level affect the level of income.
B)Changes in the price level affect the demand for money.
C)Changes in the price level affect domestic purchases of foreign goods.
D)Changes in the price level affect the real purchasing power of assets.

Question

Quizplus · Accepted Answer

The interest rate effect suggests that as the price level rises, the demand for money increases, causing an increase in the interest rate. This increase in the interest rate leads to a decrease in investment and consumption spending, resulting in a decrease in aggregate demand. Therefore, the aggregate demand curve has a negative slope, indicating an inverse relationship between the price level and the quantity of goods and services demanded in the economy.

Why,in Part,does the Interest Rate Effect Suggest That the Aggregate