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downward sloping demand curve for a single product

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Explain in detail why the aggregate demand curve slopes down. Specify how your explanation differs from the rationale behind the downward sloping demand curve for a single product?

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Solution Summary

The downward sloping demand curve for a single product is examined.

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The question requires an explanation of why, all other things remaining the same, low levels of the general price level are associated with high levels of spending on real domestic output and vice versa. The aggregate demand curve slopes down for three reasons:
1. The first reason relates to the purchasing power of the money supply and is called the interest-rate effect. For instance, when prices fall, all buyers of real domestic output will find that they need or demand less money to their goods and services than before. If the money supply is fixed, lower competition for money will drive interest rate down. This will ...

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