The aggregate demand curve slopes downward because:
A) as price rises, consumers substitute cheaper goods for more expensive goods.
B) all demand curves slope downward.
C) a higher price level will increase purchasing power.
D) a higher price level will increase exports.
E) a higher price level reduces wealth.

Question

Quizplus · Accepted Answer

The higher the price level, the lower the purchasing power of consumers, which reduces their consumption and thus reduces overall demand. Additionally, a higher price level can reduce wealth, as people's assets (such as houses or stocks) may lose value, leading to less spending and aggregate demand.

The Aggregate Demand Curve Slopes Downward Because