The AD curve slopes
A) downward due to the wealth and price effects.
B) downward due to the wealth and substitution effects.
C) upward due to the price and substitution effects.
D) upward due to the wealth and substitution effects.

Question

Quizplus · Accepted Answer

The AD (Aggregate Demand) curve slopes downward due to the wealth effect (where a decrease in the price level increases consumers' wealth and buying power, leading to an increase in consumption) and the substitution effect (where a lower price level makes consumption more attractive compared to saving, leading to an increase in consumption).

The AD Curve Slopes