Which of the following is a correct explanation for why the aggregate demand curve slopes downward? A. As the price level decre
asesdecreases, consumers substitute moremore expensive goods for lessless expensive choices. B. As the price level decreasesdecreases, the labor force increasesincreases. C. As the price level decreasesdecreases, the real value of cash balances increasesincreases, and total expenditures riserise. D. As the price level decreasesdecreases, exports become moremore expensive overseas and imports become relatively lessless expensive domestically, and thus net exports riserise.
1 answer:
Answer:
C. As the price level decreasesdecreases, the real value of cash balances increasesincreases, and total expenditures riserise.
Explanation:
The aggregate demand curve is a curve that shows all the output demanded at different price levels in an economy.
The aggregate demand curve in downward sloping. This is according to the law of demand which says, the higher the price, the lower the quantity demanded and the lower the price, the higher the quantity demanded.
Therefore, when prices fall, the real value of cash balances increases, total expenditures rises and quantity demanded rises.
When prices fall, export increases and net export rises.
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