Question

The aggregate demand curve is downward sloping because:

	a.	increases in the price level do not affect people's real wealth.
	b.	an increase in the price level will cause an increase in spending.
	c.	at lower price levels, exports increase, causing an increase in real GDP.
	d.	at lower price levels, real wealth decreases, causing a decrease in the quantities of goods and services demanded.
	e.	at lower price levels, interest rates decrease, causing a decrease in the quantities of goods and services demanded.

Answer 1

Aggregate demand curve indicates real GDP demanded at various price levels.

When price level in an economy decreases then domestically-produced goods becomes cheaper in world market relative to goods produced by other countries.

This leads to increase in demand and, thereby, exports of domestically produced goods which leads to increase in real GDP.

Thus, as price level falls, real GDP demanded increases leading to downward slope of the aggregate demand curve.

Hence, the correct answer is the option (c).