Which of the following explains why the aggregate demand curve is downward sloping?a. The interest rate effectb. The real balance effectc. The open economy effectd. All of these
The interest rate effect explains why the aggregate demand curve is downward sloping.
Explanation:
The interest rate effect proposed by Keynes suggests the reasons for why is the aggregate demand curve downward sloping.
It states that, when the interest rates are low, people choose to invest owing to the decreased costs of investment. This investment stimulates a drop in the levels of price.
The dropped prices thus increase the aggregate demand for the commodities of which the price has dropped.
