179k views
1 vote
Aggregate demand curves slope downwards for each of the following reasons except

User Kiuma
by
8.0k points

2 Answers

5 votes

Answer:

I believe the correct answer is the substitution effect

Step-by-step explanation:

(econ1101)

User Ogzd
by
7.8k points
6 votes
Reasons for an aggregate demand curve sloping downwards
1) Pigou's wealth effect - drop in the price level induces consumers to spend more, thereby increasing the aggregate demand.

2) Keynes's interest-rate effect - a drop in the price level decreases the interest rate, which increases the demand for investment and thereby increases aggregate demand.

3) Mundell-Fleming's exchange-rate effect. -
price level drops, interest rates fall, domestic investment in foreign countries increases, the real exchange rate depreciates, net exports increases, and aggregate demand increases.
User Hubert Kario
by
8.3k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.