The monetary transmission mechanism provides a partial explanation for the downward slope of the AD curve.For a given vertical M_S curve,the explanation for the negative relationship between the price level and aggregate demand is as follows: A rise in the price level shifts the M_D curve

Question

Quizplus · Accepted Answer

A rise in the price level effectively reduces the real money supply, shifting the money supply curve to the left, which increases interest rates. Higher interest rates, in turn, discourage investment spending, leading to a fall in desired investment expenditure. However, the question incorrectly describes the direction of the shift as "to the right" for the given effect. The correct explanation involves a leftward shift, but since no option accurately combines this shift with the correct outcomes, option C is chosen based on the outcomes of rising interest rates and falling investment, despite the misdescription of the shift direction.

The Monetary Transmission Mechanism Provides a Partial Explanation for the Downward