The wealth effect partially explains why the aggregate _______ curve is _______.
A) demand; downward-sloping
B) demand; upward-sloping
C) supply; downward-sloping
D) supply; upward-sloping

Question

Quizplus · Accepted Answer

The wealth effect refers to the idea that as individuals and households experience an increase in their wealth, they will increase their spending, which will in turn increase the demand for goods and services. This increase in demand will cause the aggregate demand curve to shift to the right, resulting in a downward-sloping aggregate demand curve.

The Wealth Effect Partially Explains Why the Aggregate _______ Curve