The real wealth effect is one reason for the negative slope of the aggregate demand curve.

Question

Quizplus · Accepted Answer

The real wealth effect refers to the tendency for changes in the nominal value of assets (such as stocks, real estate, or other investments) to affect aggregate demand through changes in consumer spending. When the value of assets goes up, consumers feel wealthier and therefore tend to increase their spending, leading to an increase in aggregate demand. Conversely, when the value of assets goes down, consumers tend to decrease their spending, leading to a decrease in aggregate demand. This effect contributes to the negative slope of the aggregate demand curve, as a decrease in the price level leads to an increase in the real value of assets and therefore an increase in aggregate demand.

The Real Wealth Effect Is One Reason for the Negative