Which statement partly explains why the aggregate demand curve is negatively sloped?
A) When the price of cars manufactured in the United States increases, people buy more cars manufactured abroad.
B) When the price of cars manufactured abroad increases, people buy fewer cars manufactured in the United States.
C) When the interest rate increases, people borrow more money.
D) When the interest rate decreases, people borrow less money.

Question

Quizplus · Accepted Answer

The aggregate demand curve is negatively sloped because, among other reasons, an increase in the general price level can lead to a substitution effect where consumers opt for cheaper alternatives, such as buying cars manufactured abroad when domestic prices rise. This reflects a decrease in the quantity of overall goods and services demanded as prices increase.

Which Statement Partly Explains Why the Aggregate Demand Curve Is