Why is the aggregate demand curve downward sloping?
A) because, as prices fall, nominal income rises and so does the demand for real goods and services.
B) because rising prices reduce people's wealth, thereby reducing spending
C) because the government decides to spend less to increase the price level
D) because, as prices fall, domestically produced goods become more expensive relative to foreign-produced products, which increases production

Question

Why is the aggregate demand curve downward sloping?  
A) because, as prices fall, nominal income rises and so does the demand for real goods and services. 
B) because rising prices reduce people's wealth, thereby reducing spending 
C) because the government decides to spend less to increase the price level 
D) because, as prices fall, domestically produced goods become more expensive relative to foreign-produced products, which increases production

Quizplus · Accepted Answer

The aggregate demand curve is downward sloping because as prices rise, the real wealth of consumers decreases, leading to reduced spending, which is known as the wealth effect.

Why Is the Aggregate Demand Curve Downward Sloping