AD Downward Sloping

What does the Aggregate Demand (AD) curve represent?

• The quantity demanded for a particular good at different prices

• The total output demanded in a nation’s economy at different price levels

• The supply of goods and services in an economy

• The relationship between price and quantity for a single firm

Why is the Aggregate Demand curve downward sloping?

• Higher prices increase demand for goods and services

• Lower prices reduce the purchasing power of consumers

• The wealth effect, interest rate effect, and net export effect

• Government intervention causes the curve to slope downward

What happens when the price level in a country decreases, according to the wealth effect?

• Consumers feel wealthier and demand more goods and services

• Interest rates increase, reducing investment

• Net exports decrease as foreign goods become cheaper

• Government spending automatically decreases

How does the interest rate effect explain the downward slope of the AD curve?

• Lower price levels lead to higher interest rates, reducing consumption

• Higher price levels lead to higher interest rates, reducing borrowing and spending

• Lower price levels reduce the demand for goods and services

• The government controls interest rates based on inflation levels

What happens to net exports when the domestic price level falls, assuming all else remains constant?

• Imports increase, leading to a decline in net exports

• Exports increase as domestic goods become more attractive to foreign buyers

• The demand for domestic goods decreases

• Net exports remain unchanged

Which of the following is NOT a component of Aggregate Demand?

• Household consumption

• Government spending

• Capital investment

• Labor force participation

What is the primary determinant of investment in an economy?

• Consumer spending

• Interest rates

• Government regulations

• Net exports

The wealth effect causes the AD curve to slope downward because:

• Higher prices increase purchasing power, leading to more spending

• Lower prices make consumers feel wealthier, increasing their demand for goods and services

• Higher prices make domestic goods more attractive to foreign buyers

• Lower prices discourage consumer spending

How does the interest rate effect contribute to the downward slope of AD?

• When price levels rise, interest rates fall, encouraging borrowing

• When price levels rise, interest rates rise, discouraging borrowing and spending

• Higher price levels lead to increased investment spending

• Lower price levels discourage consumer spending

According to the net export effect, when domestic price levels rise, what happens to net exports?

• Exports increase, shifting AD to the right

• Imports decrease, increasing AD

• Foreign buyers purchase fewer domestic goods, reducing net exports

• The government increases spending to offset the decrease in net exports