One explanation of why the aggregate demand curve is downward sloping is that:
A) as prices fall, nominal income rises and so does the demand for real goods and services
B) businesses increase investment spending in response to higher interest rates caused by inflation
C) with falling prices, government decides to spend less to increase the price level
D) rising prices reduce people's wealth and therefore reduce spending

Question

Quizplus · Accepted Answer

The aggregate demand curve is downward sloping because as prices rise, the real value of wealth decreases, leading to reduced consumer spending, which is known as the wealth effect.

One Explanation of Why the Aggregate Demand Curve Is Downward