Why does the aggregate demand curve slope downward?
What will be an ideal response?
The aggregate demand curve slopes downward because of the wealth effect and two substitution effects. First, a rise in the price level decreases real wealth, which brings an increase in saving and a decrease in spending—the wealth effect. Second, a rise in the price level raises the interest rate, which decreases borrowing and spending—an intertemporal substitution effect as people decrease current spending in favor of future spending—and increases the price of domestic goods and services relative to foreign goods and services, which decreases exports and increases imports—an international substitution effect.
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In an economy without international trade, investment must equal ________ saving.
A. national B. public C. private D. life-cycle
A situation in which a country does not take part in international trade is known as
A) autarky. B) openness neglect. C) indifference tradeoff. D) protectionist point.
All of the following are automatic fiscal stabilizers EXCEPT
A. a congressionally mandated decrease in tax rates to stimulate the economy. B. an increase in unemployment expenditures during a recession. C. a decrease in overall tax revenues during a recession. D. a decrease in unemployment compensation payments during an expansion.
Profit-maximizing employment is the quantity of labor at which
A) marginal revenue product is equal to marginal factor cost. B) marginal revenue product is equal to product price. C) marginal factor cost is equal to marginal revenue. D) marginal factor product is equal to product price.