There are several reasons why the aggregate demand curve is downward sloping. Which of the following CORRECTLY describes one of these explanations?
A) A rise in the price level raises the purchasing power wealth and increases desired consumption.
B) A rise in the price level raises interest rates and increases investment spending.
C) A fall in the price level, holding foreign prices and the exchange rate constant, increases net exports.
D) A rise in the price level lowers the interest rate and increases investment spending.

Question

Quizplus · Accepted Answer

A fall in the price level, while keeping foreign prices and the exchange rate constant, makes domestic goods cheaper relative to foreign goods. This increases the demand for domestic goods by foreigners, thus increasing net exports, which is one reason the aggregate demand curve is downward sloping.

There Are Several Reasons Why the Aggregate Demand Curve Is