The interest-rate and real-balances effects are important because they help explain:
A)rightward and leftward shifts of the aggregate demand curve.
B)why demand-management policy cannot be used effectively to curb stagflation.
C)the shape of the aggregate demand curve.
D)the shape of the aggregate supply curve.

Question

Quizplus · Accepted Answer

The interest-rate and real-balances effects explain why the aggregate demand curve is downward sloping, as changes in interest rates and purchasing power affect overall demand in the economy.

The Interest-Rate and Real-Balances Effects Are Important Because They Help