One reason that the aggregate demand curve has a negative slope is because
A) firms supply more when prices rise.
B) people buy more foreign goods when the domestic price level rises.
C) the amount of money in the economy increases when the price level rises.
D) firms supply less when prices rise.

Question

Quizplus · Accepted Answer

The aggregate demand curve has a negative slope partly because when the domestic price level rises, consumers are more likely to purchase less expensive foreign goods, substituting away from the more expensive domestic goods. This substitution effect leads to a decrease in the quantity of domestic goods demanded as prices rise, hence the negative slope of the aggregate demand curve.

One Reason That the Aggregate Demand Curve Has a Negative