Question

The aggregate demand curve is negatively sloped due to: a the elasticity effect of an aggregate price level change b the fiscal policy effect c the substitution effect of the aggregate price level change d the wealth effect of an aggregate price level change

Answer 1

d. the wealth effect of an aggregate price level change

Step-by-step explanation:

The aggregate demand curve is negatively sloped due to the wealth effect of an aggregate price level change. The reason is that rise in the aggregate price decreases the purchasing power of the individual and thus, decreases in aggregate demand increases the purchasing power of the individual.