The downward sloping aggregate demand curve can be explained in part through the:
A) positive relationship between the price level and net exports.
B) positive relationship between the price level and consumption.
C) negative relationship between the price level and investment spending.
D) All of these are true.

Question

Quizplus · Accepted Answer

The negative relationship between the price level and investment spending is due to the fact that as prices rise, firms need to spend more to purchase the same amount of capital goods, leading to a decrease in investment. This decrease in investment leads to a decrease in aggregate demand, resulting in the downward slope of the curve. While there may be positive relationships between the price level and net exports and consumption, they do not directly explain the downward slope of the aggregate demand curve.

The Downward Sloping Aggregate Demand Curve Can Be Explained in Part