The _______ is one reason why the aggregate demand curve is downward sloping.
A) paradox of thrift
B) natural rate of unemployment
C) wealth effect
D) presence of sticky prices

Question

Quizplus · Accepted Answer

The wealth effect is one reason why the aggregate demand curve is downward sloping. An increase in price levels reduces the purchasing power of the wealth of consumers, causing a decrease in consumption leading to a decrease in aggregate demand. This downward sloping relationship between price level and real GDP is called the wealth effect.

The _______ Is One Reason Why the Aggregate Demand Curve