The aggregate demand curve shows the total number of goods and services demanded

Question

The aggregate demand curve shows the total number of goods and services demanded in the economy for any price level. Which of the following is not a reason why the aggregate-demand curve slopes downward?

a. The theory of liquidity preference.

b. The wealth effect.

c. The interest-rate effect.

d. The exchange-rate effect.

Domestic national savings must equal domestic investment in:

a. Both closed and open economies.

b. Closed economies, but not open economies.

c. Open economies, but not closed economies.

d. Neither closed nor open economies.

Please explain how you got the answers!

Explanation / Answer

Answer.)

Q1.) a. The theory of liquidity preference.

Liquidity preference means the desire of the public to hold cash. According to Keynes, there are three motives behind the desire of the public to hold liquid cash: (1) the transaction motive, (2) the precautionary motive, and (3) the speculative motive.

Q2.) b. Closed economies, but not open economies.

An open economy can save either by building up its capital stock or by acquiring foreign wealth, but a closed economy can save only by building up its capital stock.Therefore in case of an open economy

Current Account = Saving - Investment

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