A decrease in the price level makes consumers feel wealthier, so they purchase more. This logic helps explain why the aggregate demand curve slopes downward.

Question

Quizplus · Accepted Answer

This is known as the wealth effect. When the price level falls, the real value of money increases, making consumers feel wealthier and more likely to spend, thus increasing aggregate demand. This contributes to the downward slope of the aggregate demand curve.

A Decrease in the Price Level Makes Consumers Feel Wealthier