The aggregate demand curve
A) is horizontal.
B) is vertical.
C) has a positive slope.
D) has a negative slope.

Question

Quizplus · Accepted Answer

The aggregate demand curve has a negative slope because as price levels increase, the quantity demanded of goods and services decreases. This is known as the wealth effect and the interest rate effect. As prices increase, purchasing power decreases, leading to lower consumption. Higher prices also lead to higher interest rates, which decrease investment and consumption. Therefore, the slope of the aggregate demand curve is negative.

The Aggregate Demand Curve