Why Can't the Substitution and Income Effects Be Used to Explain

question 295

Essay

Why can't the substitution and income effects be used to explain the downward slope of the
aggregate demand curve?

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Definitions:

IRR

Internal Rate of Return; a financial metric used to gauge the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows from a particular project equal to zero.

Cost of Capital

The rate of return a company must earn on its investment projects to maintain its market value and attract funds.

Profit Margin

A financial measurement that calculates the percentage of profit a company makes from its total revenue.

Profit Margin

A financial metric expressing the percentage of revenue that exceeds costs and expenses, indicating a company's profitability.