Final answer:
The statement " The downward-sloping aggregate demand (AD) curve is explained by the price effect and the quantity effect. " is true. option a is answer
Step-by-step explanation:
The statement is true. The downward-sloping aggregate demand (AD) curve is explained by two effects, the price effect and the quantityeffect.
The price effect refers to the fact that as the price level increases, the purchasing power of consumers decreases, leading to a decrease in total spending and a shift in the aggregate demand curve. The quantity effect is the result of higher prices leading to a decrease in the quantity of goods and services demanded in the economy, as consumers are less willing and able to purchase at higher prices.
That higher price levels increase the demand for money, which in turn raises interest rates and decreases investment spending. Lastly, the foreign price effect explains that an increase in the price level makes domestic goods more expensive compared to foreign goods, thereby discouraging exports and encouraging imports. option a is answer