The aggregate demand curve is negatively sloped in part because of the impact of:
A) the wealth effect on consumption.
B) the interest rate effect on government spending.
C) the stickiness of nominal wages and salaries.
D) the flexibility of nominal wages and salaries.

Question

Quizplus · Accepted Answer

The wealth effect refers to the idea that when prices fall, the real value of households' wealth increases, leading to an increase in consumption. As a result, a decrease in price level will lead to an increase in real GDP, which is illustrated by a downward slope in the aggregate demand curve.

The Aggregate Demand Curve Is Negatively Sloped in Part Because