Question

An economics student makes the following​ statement: ​"It's easy to understand why the aggregate demand curve is downward​ sloping: When the price level​ increases, consumers substitute into less expensive​ products, thereby decreasing total spending in the​ economy." This statement is false because the aggregate demand curve is

Answer 1

The aggregate demand curve is downward sloping because when the general level of price rise; the real wealth of consumers will decline (with a certain amount of money you end up buying less goods), the interest rates will increase (as inflation increases, interest rates also increase), and the price of exported goods increases (as the general price of goods increase, the production of goods will also become more expensive).