Substitution Effects Help Explain the Slope of the Aggregate Demand

question 62

Multiple Choice

Substitution effects help explain the slope of the aggregate demand curve. One substitution effect refers to the

• A) effect on investment expenditures that result from a change in interest rates produced by a change in the price level.
• B) inverse relationship between the interest rate and the price level.
• C) direct relationship between the interest rate and the real value of wealth.
• D) change in wealth that results from a change in the interest rate.

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Definitions:

Financial Data

Information relating to the financial status or performance of a company, including income, expenses, assets and liabilities.

Sales On Account

Transactions where goods or services are sold and payment is deferred, creating accounts receivable for the seller.

Average Sale Period

The average time period that items remain in inventory before being sold, indicating the liquidity of inventory.

Common Stock

A type of equity security that represents ownership in a corporation, entitling the holder to vote at shareholder meetings and receive dividends.