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The foreign purchases, interest rate, and real-balances effects explain why the_________.
A. Aggregate demand curve is downward-sloping.
B. Aggregate demand curve may shift to the left or right.
C. Economy will adjust towards equilibrium.
D. Aggregate expenditures schedule may shift up or down

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Answer:

(A) Aggregate demand curve is downward-sloping.

The foreign purchases, interest rate, and real-balances effects explain why the A. Aggregate demand curve is downward-sloping.

It should be noted that the aggregate demand curve is downward-sloping due to the fact that a decrease in output will lead to an increase in price.

Also, a reduction or an increase in the autonomous spending can shift the aggregate demand curve. When the foreign demand for domestic good falls, then the foreign spending decreases.

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