Which of the following is not a reason why the aggregate-demand curve slopes downward?

Question

a. the wealth effect
b. the interest-rate effect
c. the classical dichotomy/monetary neutrality effects
d. the exchange-rate effect
e. All of the above are reasons why the aggregate-demand curve slopes downward.

Answer 1

The correct answer is c. the classical dichotomy/monetary neutrality effects.

The classical dichotomy and monetary neutrality pertain to the long-run relationship between inflation and real variables in an economy, but they are not directly reasons for the downward slope of the aggregate demand curve. The other options—wealth effect, interest-rate effect, and exchange-rate effect—are all reasons that explain why the aggregate-demand curve slopes downward.