(Solved): 3. Why the aggregate demand curve slopes downward The graph below shows the aggregate demand (AD) ...

3. Why the aggregate demand curve slopes downward The graph below shows the aggregate demand (AD) curve for a hypothetical economy. At point X, the quantity of output demanded is $\$300$ billion, and the price level is 140 . Moving down along the $AD$ curve from point $X$ to point $Y$, the quantity of output demanded rises to $\$500$ billion, and the price level falls to 120 . As the price level falls, the cost of borrowing money will , causing the quantity of output demanded to . This phenomenon is known as the effect. Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to $\mathrm{n}$ foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore, and the number of foreign products purchased by domestic consumers and firms (imports) will . Net exports will therefore , causing the quantity of domestic output demanded to . This phenomenon is known as the effect.