Answer to Question #223197 in Economics of Enterprise for Cebo

Question

Discuss one (1) reason for the downward sloping aggregate demand curve

Answer 1

1. The wealth effect

Consumers get wealthier when prices fall, resulting in more consumer expenditure. The reason for this is because money's true value is determined by its purchasing power rather than its nominal value. This means that when prices fall, consumers can spend the same amount of money on more goods and services.This gain in income motivates people to spend more, increasing the total quantity of goods and services demanded.