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)a real-balances effect

Question

Quizplus · Accepted Answer

The real-balances effect best explains the downward slope of the aggregate demand curve. As the price level decreases, the purchasing power of money increases, causing consumers to feel wealthier and therefore spend more. This results in an increase in aggregate demand, causing the curve to slope downwards.

Which Effect Best Explains the Downward Slope of the Aggregate