Why is the AD curve downward? sloping pick one answer below: A. The higher inter

Question

Why is the AD curve downward? sloping pick one answer below:

A. The higher interest rate produced by a lower price level leads to more consumption? spending, investment? spending, and net exports.

B. An increase in the price level decreases real money? balances, which raises the interest rate. The higher interest rate decreases consumption? spending, investment? spending, and net exports.

C. AD slopes downward for the same reasons the demand for an individual good slopes? downward: because of income and substitution effects.

D. If nothing else? changes, a decrease in the price level reduces aggregate expenditure on goods and services.

Explanation / Answer

B. AD curve is downward sloping as an increase in the price level decreases real money balances, which raises the interest rate. the higher interest rate decreases consumption spending, investment spending and net exports. this is because a change in price level causes change in quantity demanded due to real balance effect, interest rate effect and foreign trade effect.

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