The downward sloping aggregated demand curve can be explained in part through:
A)the wealth effect.
B)the negative relationship between the price level and net exports.
C)the negative relationship between the price level and investment spending.
D)All of these are true.

Question

Quizplus · Accepted Answer

The downward sloping aggregated demand curve can be attributed to all three factors: the wealth effect, the negative relationship between the price level and net exports, and the negative relationship between the price level and investment spending. The wealth effect suggests that as the price level falls, real wealth increases, leading to an increase in consumer spending. The negative relationship between the price level and net exports states that as the domestic price level rises, exports become more expensive and imports become relatively cheaper, decreasing net exports. The negative relationship between the price level and investment spending suggests that as the price level rises, the cost of borrowing increases, and investment spending decreases. All three factors result in a lower level of aggregate demand at higher price levels, leading to a downward sloping aggregate demand curve.

The Downward Sloping Aggregated Demand Curve Can Be Explained in Part