The aggregate demand curve slopes downward to the right because
A)as prices decrease,the real value of the fixed quantity of money increases and thereby stimulates consumer spending.
B)a lower price level reduces the price of domestic goods relative to foreign goods,increasing net exports (the international substitution effect).
C)a lower price level reduces the demand for money and lowers the real interest rate,stimulating consumption and investment spending (the interest rate effect).
D)all of the above are correct.

Question

Quizplus · Accepted Answer

All of the given reasons contribute to the slope of the aggregate demand curve. When prices decrease, the real value of money increases, leading to more consumer spending (Answer A). Additionally, lower prices can make domestic goods more attractive compared to foreign goods, increasing net exports (Answer B). Finally, a lower price level can stimulate consumption and investment spending by lowering the real interest rate, as it reduces the demand for money (Answer C). All three effects work together to ensure that the aggregate demand curve slopes downward to the right.

The Aggregate Demand Curve Slopes Downward to the Right Because