Which effect best explains the downward slope of the aggregate demand curve?
A)a multiplier effect
B)an income effect
C)a substitution effect
D)an interest rate effect

Question

Quizplus · Accepted Answer

The downward slope of the aggregate demand curve is best explained by the interest rate effect. As the price level in the economy decreases, interest rates tend to fall, which encourages households and businesses to increase their spending on goods and services, thereby boosting aggregate demand. Conversely, when prices rise, interest rates tend to rise, leading to a decrease in aggregate demand.

Which Effect Best Explains the Downward Slope of the Aggregate