Which of the Following Reasons Helps Explain Why the Aggregate

Multiple Choice

Which of the following reasons helps explain why the aggregate demand curve is downward sloping?

A) The real balances effect or wealth effect: Consumers spend more on goods and services when the price level falls because lower prices increase consumer purchasing power.
B) The producer-push effect: At less than full employment, increases in quantity demanded will raise price, and thus will motivate sellers to produce more.
C) The hidden inflation effect: As the price level rises, consumers fail to recognize that prices are higher, and consequently they fail to reduce expenditures on goods and services.
D) The cost-pull effect: As costs of production rise, consumers are pulled to buy more of the products they want most.