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

Question

Quizplus · Accepted Answer

The interest-rate effect best explains the downward slope of the aggregate demand curve. As the price level increases, the demand for money also increases, leading to an increase in interest rates. Higher interest rates then decrease investment and consumption spending, ultimately leading to a decrease in real GDP and a movement along the aggregate demand curve.

Which of the Following Effects Best Explains the Downward Slope