The aggregate demand curve is downward sloping because of:
A) the inverse relationship between price and quantity demanded.
B) changes in expectation of future prices.
C) unexpected changes in commodity prices.
D) the wealth effect of a change in aggregate price level.

Question

Quizplus · Accepted Answer

The wealth effect occurs because as the aggregate price level increases, the purchasing power of money decreases, which leads to a decrease in the overall wealth of the economy. This, in turn, leads to a decrease in consumption, causing a decrease in aggregate demand. Therefore, the aggregate demand curve is downward sloping due to the wealth effect of a change in aggregate price level.

The Aggregate Demand Curve Is Downward Sloping Because Of