The downward sloping aggregate demand curve can be explained in part through the:
A) wealth effect.
B) negative relationship between the price level and net exports.
C) negative relationship between the price level and investment spending.
D) All of these are true.

Question

Quizplus · Accepted Answer

The downward sloping aggregate demand curve can be explained through all three factors: the wealth effect (as prices rise, consumers feel less wealthy and therefore spend less), the negative relationship between the price level and net exports (as domestic prices rise relative to foreign prices, exports decrease and imports increase), and the negative relationship between the price level and investment spending (higher prices increase the cost of capital goods and reduce the incentive to invest).

The Downward Sloping Aggregate Demand Curve Can Be Explained in Part