The aggregate demand curve slopes downwards because of the real wealth, interest rate, and international substitution effects.

Question

Quizplus · Accepted Answer

The aggregate demand curve slopes downwards due to the real wealth effect (where a decrease in the price level increases consumers' real wealth, leading to higher consumption), the interest rate effect (where a lower price level reduces the interest rate, encouraging more investment and consumption), and the international substitution effect (where a lower domestic price level makes domestic goods cheaper relative to foreign goods, increasing exports and decreasing imports).

The Aggregate Demand Curve Slopes Downwards Because of the Real