Question

Which of the following are reasons the aggregate demand curve is downward sloping? Check all that apply.

Answer 1

Answer:

1) A higher price level decreases the real value of consumers' assets.

2) A lower price level makes domestically produced goods less expensive than foreign goods.

Explanation:

The aggregate demand curve represents the number of demands of the goods and services at various price levels. The downward sloping of the demand curve indicates that with the dropping of the price level of a commodity, the demand increases. At the same time, the national income increases as the result of the dropping of the price. There are three reasons why the aggregate demand curve is downward sloping. The reasons are wealth effect, interest-rate effect, and net exports effect.