The wealth effect,interest rate effect,and international trade effect all explain why the:
A) aggregate demand (AD) curve has a negative slope.
B) AD curve has a positive slope.
C) aggregate supply (AS) curve has a positive slope.
D) AS curve has a negative slope.
E) price level and real gross domestic product (GDP) are unrelated.

Question

Quizplus · Accepted Answer

The wealth effect, interest rate effect, and international trade effect are all factors that affect aggregate demand. These factors all lead to a change in either consumer spending or investment spending, which causes a shift in the AD curve. Specifically, the wealth effect refers to the impact that changes in the value of assets, such as stocks or real estate, have on consumer spending. As asset values increase, people feel wealthier and are more likely to spend money, which leads to an increase in aggregate demand. The interest rate effect refers to the impact that changes in interest rates have on investment spending. As interest rates rise, it becomes more expensive for businesses to borrow money, which can lead to a decrease in investment spending and a decrease in aggregate demand. The international trade effect refers to the impact that changes in international trade have on exports and imports. As exports increase or imports decrease, net exports increase, which leads to an increase in aggregate demand. All of these factors have the potential to shift the AD curve and, as a result, the AD curve has a negative slope.

The Wealth Effect,interest Rate Effect,and International Trade Effect All Explain