One reason the AD curve is downward sloping is the __________ effect.
A) wage rate
B) productivity
C) interest rate
D) structural
E) none of the above

Question

Quizplus · Accepted Answer

The interest rate effect is when the overall price level in an economy falls, it leads to a fall in interest rates, hence encouraging investment and consumer spending, which, in turn, increasing aggregate demand. Similarly, if the price level rises, the opposite occurs, discouraging investment and consumer spending and decreasing aggregate demand. Therefore, this effect makes the AD curve slope downwards.

One Reason the AD Curve Is Downward Sloping Is the __________