why does aggregate demand slopes downwards according to the interest rate effect?
Answers
Answer:
To understand why the aggregate demand curve is downward sloping, we have to look at the relationship between the price level and the components of GDP (see also how to calculate GDP). More specifically, we have to analyze how the price level affects the quantity of goods and services demanded for consumption, investments, and net exports. By doing so, we can identify three distinct but related reasons why the aggregate demand curve is downward sloping: (1) the Wealth Effect, (2) the Interest Rate Effect, and (3) the Exchange Rate Effect
Explanation:
Answer:
The aggregate demand curve represents the total of consumption, investment, government purchases, and net exports at each price level in any period. It slopes downward because of the wealth effect on consumption, the interest rate effect on investment, and the international trade effect on net exports.