The aggregate demand curve slopes downward
I. for the same reasons that an ordinary demand curve does.
II. in part because when the price level falls, the real wealth of the public falls, and this induces people to change their consumption.
III. because as the price level falls, the net export component of aggregate demand increases.
A) I, II, and III
B) II and III
C) II only
D) III only

Question

Quizplus · Accepted Answer

The aggregate demand curve slopes downward because of the wealth effect. When the price level falls, the real wealth of the public increases, and this induces people to increase their consumption.

The Aggregate Demand Curve Slopes Downward