Answer to Question #240144 in Macroeconomics for Cebo

Question

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

Answer 1

The first reason for the downward slope of the aggregate demand curve is Pigou's wealth effect. Thus, a drop in the price level induces consumers to spend more, thereby increasing the aggregate demand. The second reason for the downward slope of the aggregate demand curve is Keynes's interest-rate effect.