Asked by Chelsea Lewis on May 18, 2024
Verified
Which one of the following does NOT explain why the aggregate demand curve is downward sloping?
A) The real balances effect
B) The entropy effect
C) The foreign purchases effect
D) The interest rate effect
Real Balances Effect
The impact of changing prices on the purchasing power of individuals' money holdings, influencing consumption and savings decisions.
Foreign Purchases Effect
The decrease in domestic demand for goods and services as a result of consumers buying goods from foreign markets, usually due to price or currency exchange advantages.
Interest Rate Effect
The interest rate effect describes how changes in the central bank's interest rate influence the economy by affecting consumer spending and investment.
- Understand the reasons behind the downward slope of the aggregate demand curve.
Verified Answer
TC
Tejaswini ChintapalliMay 18, 2024
Final Answer :
B
Explanation :
The entropy effect is not a reason why the aggregate demand curve is downward sloping. The correct reasons are the real balances effect, the foreign purchases effect, and the interest rate effect.
Learning Objectives
- Understand the reasons behind the downward slope of the aggregate demand curve.