Aggregate demand curves slope downwards for each of the following reasons EXCEPT
A. The wealth effect: As the price level falls, the buying power of people’s savings increases and induces them to spend more.
B. The substitution effect: As the price level falls, people buy more of the cheaper goods and less of other goods.
C. The interest rate effect: As prices for outputs rise, it costs more to make the same purchases, driving up the demand for money, raising interest rates and reducing investment spending.
D. The foreign price effect: As the price level falls, U.S. become more attractive to foreigners and domestic residents, increasing net export spending.
Answer:B
Aggregate demand curves slope downwards for each of the following reasons EXCEPT
A. The wealth effect: As the price level falls, the buying power of people’s savings increases and induces them to spend more. B. The substitution effect: As the price level falls, people buy more of the cheaper goods and less of other goods. C. The interest rate effect: As prices for outputs rise, it costs more to make the same purchases, driving up the demand for money, raising interest rates and reducing investment spending. D. The foreign price effect: As the price level falls, U.S. become more attractive to foreigners and domestic residents, increasing net export spending.
Explanation: Type: Multiple Choice