Which statement best characterizes the aggregate-demand curve?
A) It slopes downward because higher prices cause the exchange rate to depreciate.
B) It slopes downward because higher prices cause real wealth to decrease and interest rates to increase.
C) It slopes upward because higher prices cause people to increase their production.
D) It slopes upward because higher prices cause real wealth to increase and interest rates to decrease.

Question

Quizplus · Accepted Answer

The aggregate-demand curve slopes downwards because higher prices lead to a decrease in real wealth, leading to a reduction in consumer spending, and higher interest rates leading to a decrease in investment. This behavior causes a reduction in aggregate demand.

Which Statement Best Characterizes the Aggregate-Demand Curve