A rise in the price level decreases aggregate demand.

Question

Quizplus · Accepted Answer

A rise in the price level typically leads to a decrease in the quantity of aggregate demand due to the wealth effect, interest rate effect, and international trade effect, but it does not decrease aggregate demand itself. Aggregate demand is represented by the entire demand curve, which shows the relationship between the price level and the quantity of output demanded. A movement along the demand curve, not a shift of the curve, represents the change in quantity demanded due to a price level change.

A Rise in the Price Level Decreases Aggregate Demand