The answer is lower, raises, reduces.
The total amount spent on domestic goods and services in an economy is known as aggregate demand.
The relationship between the amount of total spending in the economy and the price level for products is depicted by the aggregate demand curve's downward slope.
Aggregate demand includes all four components of demand:
- Consumption
- Investment
- Government spending
- Net exports = exports - imports
There are 3 effects of diminshing aggregate demand includes:
- The wealth effect
- The interest rate effect
- The Foreign price effect
Although the amount of aggregate demand changes relatively little as a result of changes in price level, the steep slope suggests that a higher price level for final outputs does diminish aggregate demand for all three of these causes.
Hence, the aggregate demand curve generally slopes downward and to the right because, for any given money supply M a higher price level P causes a lower real money supply M/P, which raises the interest rate and reduces spending.
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