The real wealth and the real interest rate effects are both causes of the downward slope of the aggregate demand curve.

Question

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The real wealth effect refers to the change in aggregate demand resulting from a change in the purchasing power of consumers due to a change in the value of their assets or wealth. The real interest rate effect refers to the change in aggregate demand resulting from a change in the cost of borrowing due to changes in interest rates. Both of these effects can cause a downward slope of the aggregate demand curve because at higher price levels, real wealth and real interest rates decrease which in turn reduces consumption and investment spending, thus decreasing aggregate demand.

The Real Wealth and the Real Interest Rate Effects Are