The aggregate demand curve is negatively sloped because:

Question

Quizplus · Accepted Answer

All three factors listed in options A, B, and C contribute to the negative slope of the aggregate demand curve. Option A states that higher prices cause a substitution of foreign goods for domestic goods, which decreases demand for domestic goods and shifts the aggregate demand curve leftward. Option B states that higher prices erode the value of financial assets, such as money, stocks, and bonds, which decreases consumer and investor wealth and reduces their willingness and ability to spend, shifting the aggregate demand curve leftward. Option C states that higher prices lead to an increase in interest rates, which slows investment and consumption spending, thereby shifting the aggregate demand curve leftward. All these factors together result in a negative relationship between the price level and the quantity of real GDP demanded, which is shown by the downward slope of the aggregate demand curve.

The Aggregate Demand Curve Is Negatively Sloped Because