The intertemporal substitution effect of the price level on aggregate demand
A) is one reason that the aggregate demand curve has a positive slope.
B) is one reason that the aggregate demand curve has a negative slope.
C) explains why aggregate demand increases when the amount of money increases.
D) is the same as the real wealth effect.

Question

Quizplus · Accepted Answer

The intertemporal substitution effect suggests that when the price level falls, the real value of money increases, leading consumers to substitute current consumption for future consumption, thus increasing aggregate demand. This contributes to the negative slope of the aggregate demand curve.

The Intertemporal Substitution Effect of the Price Level on Aggregate