One Explanation of Why the Aggregate Demand Curve Is Downward

question 50

Multiple Choice

One explanation of why the aggregate demand curve is downward sloping is that

• A)as prices fall,nominal income rises and so does the demand for real goods and services
• B)rising prices reduce people's wealth and thereby reduce spending
• C)with falling prices,government decides to spend less to increase the price level
• D)businesses increase investment spending in response to higher interest rates caused by inflation
• E)as prices fall,domestically produced goods become more expensive relative to foreign-produced products,which increases production

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Definitions:

FIFO Method

The FIFO (First-In, First-Out) method is an inventory valuation strategy where the costs of the oldest inventory items are assigned to the cost of goods sold first.

Inventory Item

An item stored within a company's inventory that is ready or will be ready for sale, including raw materials, work-in-progress, and finished goods.

Gross Profit Method

A technique used in accounting to estimate the amount of ending inventory and cost of goods sold by applying a gross profit margin to sales.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated as the beginning inventory plus purchases minus cost of goods sold.