Answered: Aggregate demand curves slope downwards…

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter33: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 4CQQ

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Question

1. 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.

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