Question : The aggregate demand curve slopes downward due to the:
Option 1: Wealth effect, interest rate effect, and foreign trade effect
Option 2: Wealth effect and interest rate effect only
Option 3: Interest rate effect and foreign trade effect only
Option 4: Wealth effect and foreign trade effect only
Correct Answer:
Wealth effect, interest rate effect, and foreign trade effect
Solution : The correct answer is (a) the wealth effect, interest rate effect, and foreign trade effect.
The downward slope of the aggregate demand curve is a fundamental concept in macroeconomics. It indicates the inverse relationship between the overall price level in an economy and the quantity of goods and services demanded.
These three effects—wealth effect, interest rate effect, and foreign trade effect—combine to create the downward slope of the aggregate demand curve, reflecting the inverse relationship between the overall price level and the quantity of goods and services demanded in an economy.
