At a higher price level, the demand for money increases, the interest rate increases, and the demand for business and residential investment falls.Hence the aggregate-demand curve slopes downward.

Question

Quizplus · Accepted Answer

As the price level increases, people need more money for transactions, which increases the demand for money. This leads to higher interest rates, making borrowing more expensive and thus reducing investment in business and residential projects. Consequently, overall demand decreases, illustrating why the aggregate-demand curve slopes downward.

At a Higher Price Level, the Demand for Money Increases