Which of the following explains why the aggregate demand curve slopes downward?

a. If the price level increases, we feel poorer and therefore buy less

a. If the price level increases, we feel richer and therefore buy more.

c. If domestic prices increase, we substitute domestic goods for imported ones.

d. If the price of a particular good increases, we substitute that good with a different one.

Question

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Guest

16 January, 08:50

Which of the following explains why the aggregate demand curve slopes downward?

a. If the price level increases, we feel poorer and therefore buy less

a. If the price level increases, we feel richer and therefore buy more.

c. If domestic prices increase, we substitute domestic goods for imported ones.

d. If the price of a particular good increases, we substitute that good with a different one.

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Answers (1)

Know the Answer?

Jorge Barnett · Answer 1

Answer: Option (a) is correct.

Explanation:

Correct option: If the price level increases, we feel poorer and therefore buy less.

Law of demand says that if a price of a commodity increases as a result there will be less demand for the commodity. So, there is a inverse relationship between the price and demand for the product.

Now, suppose there is an increase in the price level. This reduces the demand for the product because it will become expensive for the buyer to purchase same amount of goods at a higher price.

Also, this rise in the price level decreases the purchasing power of the consumer which will result in lower demand for the product.