The real balance effect and the open economy effect account for the downward slope of aggregate demand.

Question

Quizplus · Accepted Answer

The real balance effect and the open economy effect are two of the reasons why the aggregate demand curve slopes downward. The real balance effect refers to the change in consumption resulting from a change in real wealth due to price level changes, while the open economy effect involves changes in net exports due to price level changes affecting exchange rates.

The Real Balance Effect and the Open Economy Effect Account