Answer: The factors relating to Aggregate Demand curve are Real-Balances Effect, Interest-Rate Effect and Foreign Purchases ie 1,3 and 8.
Explanation:
The Aggregate Demand Curve gives aninverse relationship between price level and domestic output and depends on the following factors.
1.Real balances effect: This occurs when price level falls. It will lead the purchasing power of already existing financial assets to rise which cause an increase in spending.
Here consumers will be encouraged to buy more goods since price level falls making them feel richer.
2. Interest-rate effect: THis occurs when price level increases making businesses and households start to borrow additional funds inorder to complete their already planned purchase budget.
The interest rate rises as borrowing increases, which in turn will lead to curtailing already planned consumption. Therefore a reduction in price level will lead to lower interest rates which can increase spending.
3. Foreign purchases effect: This occurs when price level of a country rises relative to foreign countries, then it's consumers will purchase more foreign goods than the country's own good leading to more export than import
In general, A change in the quantity demanded of Real GDP always occur because of a change in the price level and also causes downward slope of aggregate demand curve when plotted.
