Why does the aggregate demand curve slope downward?
The effect of higher prices on consumer wealth is one of several reasons why the aggregate demand curve slopes downward. Higher prices decrease the demand for goods and services because they erode the purchasing power of consumer wealth. Conversely, lower prices increase the demand for goods and services by enhancing the purchasing power of consumer wealth. Second reason comes from international trade. High domestic prices will depress a country's export and stimulate imports. This will shift total expenditure curve downward and lower the real GDP.
You might also like to view...
In which of these developing regions has food production per capita steadily fallen over the last quarter century?
(a) Africa. (b) East Asia. (c) South Asia. (d) Latin America.
Robert Solow is one of the developers of
a. classical economics. b. the neoclassical growth model. c. real business cycle theory. d. new classical economics.