Which of the following is used to explain why the AD curve slopes downward?
A)The interest rate effect.
B)The cost effect.
C)The profit effect.
D)The laissez faire effect.

Question

Quizplus · Accepted Answer

The downward slope of the AD curve can be explained by the interest rate effect, which states that as the price level increases, people need more money to purchase goods and services, which in turn leads to an increase in the demand for money, thereby increasing the interest rate. This increase in the interest rate leads to a reduction in investment and consumption spending, resulting in a decrease in the aggregate demand for goods and services.

Which of the Following Is Used to Explain Why the AD