Which of the following partly explains why the aggregate demand curve is negatively sloped?
A) When the price of cars manufactured in the United States increases, people buy more cars manufactured abroad.
B) When the price of cars manufactured abroad increases, people buy fewer cars manufactured in the United States.
C) When the interest rate increases, people borrow more money.
D) When the interest rate decreases, people borrow less money.

Question

Quizplus · Accepted Answer

When domestic prices rise, consumers may switch to relatively cheaper foreign goods, which is part of the substitution effect that contributes to the negative slope of the aggregate demand curve.

Which of the Following Partly Explains Why the Aggregate Demand