Aggregate demand's downward-sloping character reflects three principal influences as shown in which of the following?
A) People's desire to maintain real wealth holdings, the interest rate, and international trade.
B) People's desire to increase the price level, the interest rate, and the economic growth effect.
C) The interest rate, the economic growth effect, and international trade.
D) Cost-pull inflation, demand-pull inflation, and the need to maintain real wealth holdings.

Question

Quizplus · Accepted Answer

Aggregate demand's downward-sloping character reflects three principal influences: (1) the real-balances effect, which is people's desire to maintain real wealth holdings; (2) the interest-rate effect, which is the inverse relationship between the price level and the interest rate; and (3) the foreign purchases effect, which is the impact of changes in the exchange rate on net exports. Option A correctly identifies these three principal influences. Option B is incorrect because people do not desire to increase the price level, but rather aim to maintain their real wealth holdings. Option C is incorrect because it misses the real-balances effect. Option D is incorrect because it refers to different types of inflation rather than the principal influences on aggregate demand.

Aggregate Demand's Downward-Sloping Character Reflects Three Principal Influences as Shown