Which of the following explains why the aggregate demand schedule is downward sloping?
A) the real-balances effect
B) the interest rate effect
C) the foreign trade effect
D) all of the above

Question

Quizplus · Accepted Answer

The downward slope of the aggregate demand schedule is due to the real-balances effect (as the price level decreases, the purchasing power of wealth increases, leading to higher consumption spending), the interest rate effect (as the price level decreases, interest rates decrease, leading to higher investment spending), and the foreign trade effect (as the price level decreases, exports become cheaper and imports become more expensive, leading to higher net exports).

Which of the Following Explains Why the Aggregate Demand Schedule