2. Why the AD curve slopes down
Wealth effect
Interest Rate Effect
Net Export Effect

4. Wealth effect Increase P = decrease C
$ buys less so consumers cut back

5. Interest Rate Effect Increase P = Increase IR = decrease I (and C)
Consumers need more cash to pay higher prices
Borrow more which increases demand for $
Save less which decreases supply of $
Consumers (and firms) don’t want to pay higher interest rates so they cut back

7. Net Export Effect Increase P = decrease in X and increase in M
US goods are more expensive compared to foreign goods
Consumers buy less domestic and more foreign
X-M (net exports) decrease

11. Practice