Which of the following accounts for a movement along a given AD curve?
A) The substitution effect
B) The tax rate effect
C) The real-balance effect
D) The foreign aid effect
E) The government spending effect

Question

Quizplus · Accepted Answer

The movement along the AD curve is caused by changes in the price level, which triggers the real-balance effect. As the price level decreases, the purchasing power of money increases, leading to higher consumption and a higher level of aggregate demand. The other effects listed (substitution effect, tax rate effect, foreign aid effect, and government spending effect) may cause a shift in the AD curve, but not a movement along it.

Which of the Following Accounts for a Movement Along a Given