There Are Several Reasons Why the Aggregate Demand Curve Is

question 386

Multiple Choice

There are several reasons why the aggregate demand curve is downward sloping. Which of the following CORRECTLY describes one of these explanations?

• A) A rise in the price level raises the purchasing power wealth and increases desired consumption.
• B) A rise in the price level raises interest rates and increases investment spending.
• C) A fall in the price level, holding foreign prices and the exchange rate constant, increases net exports.
• D) A rise in the price level lowers the interest rate and increases investment spending.

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Definitions:

Scientific Method

A systematic process for investigating phenomena, acquiring new knowledge, or correcting and integrating previous knowledge, based on empirical or measurable evidence.

Functional Fixedness

A cognitive bias that limits a person to using an object only in the way it is traditionally used.

Representative Heuristic

A mental shortcut that involves making judgments based on how well something matches existing prototypes or stereotypes in our minds.

Heuristics

Mental shortcuts or rules of thumb that simplify decision making, often leading to a solution that is good enough rather than perfect.