The aggregate demand curve shows the relationship between the volume of purchases and the price level. The aggregate demand curve is downward sloping because, ceteris paribus people are willing and able to buy more goods and services at lower average prices. Which of the following is a reason for the downward slope of the aggregate demand curve? A- The real balances effect B- The interest rate effect C- The foreign trade effect D- All of the above

Economics

1. Aggregate demand curves slope downwards for each of the following reasons EXCEPTA. The wealth effect: As the price level falls, the buying power of people’s savings increases andinduces them to spend more.B. The substitution effect: As the price level falls, people buy more of the cheaper goods and lessof other goods.C. The interest rate effect: As prices for outputs rise, it costs more to make the same purchases,driving up the demand for money, raising interest rates and reducing investment spending.D. The foreign price effect: As the price level falls, U.S. become more attractive to foreignersand domestic residents, increasing net export spending.

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