The real balance effect is one of the
A) reasons why an AD curve is downward-sloping.
B) shifters of an AD curve.
C) reasons why a short-run aggregate supply curve can be derived.
D) shifters of a short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

The real balance effect explains why the aggregate demand (AD) curve is downward sloping. It suggests that as the price level falls, the purchasing power of money increases, leading to higher consumer spending and thus a higher quantity of goods and services demanded.

The Real Balance Effect Is One of the