Which of the Following Helps Explain Why the AD Curve

question 23

Multiple Choice

Which of the following helps explain why the AD curve is downward sloping?

• A) If consumers and businesses expect higher prices in the future, they will purchase more today, increasing investment and consumption expenditure.
• B) When the price level falls, the real value of wealth rises, so people save less and consume more.
• C) If the exchange rate falls and the price level does not change, exports increase and imports decrease.
• D) None of the above answers is correct.

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Definitions:

Rate of Interest

The percent of principal charged by the lender for the use of its money or the rate earned on invested capital.

Initial Investment

The upfront cash outlay required to start a project or investment.

Cash Inflows

Cash inflows refer to the money received by a business from its operational, financing, and investing activities.

IRR

A financial indicator known as the Internal Rate of Return is used in capital budgeting to assess the expected gains of future investments.