Question

Match the cause for the negatively sloped aggregate demand curve with the correct term.

a. As prices rise, the cost for businesses to finance new equipment increases, causing a drop in quantity demanded of real GDP.
b. The purchasing power of money held in savings accounts falls as prices rise.
c. As prices rise in the United States, foreigners purchase fewer U.S. goods.

WORD BANK
the wealth effect
the export effect
the interest rate effect
the aggregate demand effect

Answer 1

The second one is gonna be your answer

Answer 2

a. interest rate effect

b. wealth effect

c. export effect

Step-by-step explanation:

Aggregate demand curves are typically modeled with a negative slope. There are three main reasons for this.

The interest rate effect describes the outcome in which an increase in the price level will cause interest rates to rise, as the demand for borrowed money increases due to higher prices.

The wealth effect describes the impact of rising prices on the value of household assets. As the price level rises, the purchasing power of financial assets decreases, causing households to spend less.

The export effect examines the impact of the rising price level on foreign purchases. If U.S. goods are more costly, then foreigners will purchase less from the United States and exports will fall. This will cause the quantity demanded of real GDP to fall within the United States.