Question
The Aggregate Demand (AD) curve slopes downward due to
various reasons . Identify the correct set of reasons from the following options:Solution
Explanation: Â
- Wealth Effect: When price levels drop, purchasing power increases, encouraging more consumption. Â
- Interest Rate Effect: Lower price levels reduce interest rates, stimulating investment and demand. Â
- Exchange Rate Effect: When domestic prices fall, exports become cheaper, increasing net exports and boosting aggregate demand. Â
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