Why is the AD curve downward sloping?
Understand the Problem
The question is asking for an explanation of why the aggregate demand (AD) curve slopes downward. This involves understanding the inverse relationship between the price level and the quantity of goods and services demanded in an economy.
Answer
The aggregate demand curve is downward sloping due to the wealth effect, the interest rate effect, and the international trade effect.
The aggregate demand curve is downward sloping because of the wealth effect on consumption, the interest rate effect on investment, and the international trade effect on net exports.
Answer for screen readers
The aggregate demand curve is downward sloping because of the wealth effect on consumption, the interest rate effect on investment, and the international trade effect on net exports.
More Information
The AD curve is an important concept in macroeconomics as it helps explain how changes in the price level can influence the overall economic activity.
Tips
A common mistake is to confuse the AD curve with the aggregate supply (AS) curve, or not to clearly distinguish between the wealth effect, interest rate effect, and international trade effect.
Sources
- Principles of Economics - University of Minnesota - open.lib.umn.edu
- Why is the aggregate demand (AD) curve downward sloping? - economicshelp.org
- What are the economic reasons why the AD curve slopes down? - vaia.com
