The real balance effect (wealth effect), the interest rate effect, and the net exports effect all help to explain the:
A) decrease in supply in the loanable funds market.
B) large federal budget deficit.
C) increase in short-run aggregate supply.
D) downward-sloping aggregate demand curve.

Question

Quizplus · Accepted Answer

The real balance effect, interest rate effect, and net exports effect all affect aggregate demand, which is represented by the downward-sloping aggregate demand curve. The real balance effect and interest rate effect both deal with changes in consumer spending and investment, which are components of aggregate demand. The net exports effect deals with changes in exports and imports, which also affects aggregate demand.

The Real Balance Effect (Wealth Effect), the Interest Rate Effect