Which of the following reasons helps explain why the aggregate demand curve is downward sloping?

A. The real balances effect or wealth effect: Consumers spend more on goods and services when the price level falls because lower prices increase consumer purchasing power.
B. The producer-push effect: At less than full employment, increases in quantity demanded will raise price, and thus will motivate sellers to produce more.
C. The hidden inflation effect: As the price level rises, consumers fail to recognize that prices are higher, and consequently they fail to reduce expenditures on goods and services.
D. The cost-pull effect: As costs of production rise, consumers are pulled to buy more of the products they want most.


Answer: A

Economics

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