key terms expand 1 When the price level increases the demand

key terms expand 1 When the price level increases, the demand for money increases, causing an increase in interest rates and curtailing investment spending. This contributes to the downward-sloping nature of the AD curve and is called tions that Select When the price level increases, the price of exports increases, leading to fewer export purchases. This contributes to the downward-sloping nature of the AD curve and is called Select 3 When the price level increases, the purchasing power of assets owned by the public decreases, causing consumption spending to decline. This contributes to the downward-sloping nature of the AD curve and is called Select Logic Case next

Solution

1) When the price level increases,the demand for money increases, causing an increase in interest rates and curtailing investment spending. This contributes to the downward sloping nature nature of AD curve and is called .........

Ans: Interest Rate Effect.

When price level increases the demand for money also increases which will in turn induces interest rates to go up. Higher interest rate make borrowing a painful act as a result of which investment expenditure will come down. This is known as Interest Rate Effect.

2) When the price level increases, the price of exports increases, leading to fewer export purchases. This contributes to the downward sloping nature of AD curve and is called ............

Ans: International Trade Effect.

A higher price level makes the domestic countries goods lesser attractive to foreign consumers and will result in a declining trend in exports. This will also make foreign goods more attractive to the domestic consumers because they are cheaper than the domestically produced goods, thus increasing imports. This will result in a situation where imports are greater than that of exports. Change in Price level affecting net exports is known as international trade effect.

3) When the price level increases, the purchasing power of asstes owned by the public decreases, causing consumption spending to decline. This contributes to the downward sloping nature of the AD curve is called.........

Ans : Wealth Effect.

Inverse relationship between Price level and Consumption Spending is known as wealth effect.