The aggregate demand curve slopes downward because
A)people tend to substitute cheaper goods with more expensive goods.
B)the SRAS curve is horizontal.
C)an increase in the price level reduces the aggregate quantity of goods demanded.
D)the LRAS curve is vertical.

Question

Quizplus · Accepted Answer

The downward slope of the aggregate demand curve is a result of the inverse relationship between the price level and the aggregate quantity of goods demanded. As the price level increases, consumers are less able and willing to purchase the same quantity of goods, causing a decrease in aggregate demand. This is known as the wealth effect and the interest rate effect.

The Aggregate Demand Curve Slopes Downward Because