Which of the following explains why the aggregate demand curve slopes downward? a) the interest-rate effect, the real-balances effect, and the foreign purchases effect b) the investment effect, the real-purchases effect, and the foreign purchases effect c) the interest-rate effect, the real-purchases effect, and the foreign purchases effect d) the investment effect, the real-balances effect, and the international effect

Option (a) is correct.

Explanation:

Real balance effect: This effect states the relationship between the price level and the purchasing power of the consumer. If there is a higher price level in an economy then this will reduce the purchasing power of the consumers and results in a fall in investment expenditure, net exports and consumption expenditure. That's why aggregate demand curve is slopes downward.

Interest-rate effect: This effect states the cost of borrowing funds with the price inflation in an economy. If there is a higher interest rate then most of the consumers cut down there borrowings activities which is one of the reason of downward sloping demand curve.

Foreign purchases effect: When there is a fall in the price level then as a result the price in the United states falls relative to the foreign prices. Hence, there is an increase in the U.S exports and decrease in the U.S imports.

how does that happen,where u steel points

answer; risk transference;