Which of the Following Reasons Helps Explain Why the Aggregate

question 86

Multiple Choice

Which of the following reasons helps explain why the aggregate demand curve is downward sloping?

• A) The real balances effect or wealth effect: Consumers spend more on goods and services when the price level falls because lower prices increase consumer purchasing power.
• B) The producer-push effect: At less than full employment, increases in quantity demanded will raise price, and thus will motivate sellers to produce more.
• C) The hidden inflation effect: As the price level rises, consumers fail to recognize that prices are higher, and consequently they fail to reduce expenditures on goods and services.
• D) None of the above.