# 170 160 150 A 140 130 В 120 AD 110 100 90 100 200 300 400 500 600 700 800 OUTPUT (Billions of dollars) PRICE LEVEL As the price level falls, the cost of borrowing money will causing the quantity of output demanded effect This phenomenon is known as the to in foreign exchange Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to and the number of foreign markets. The number of domestic products purchased by foreigners (exports) will therefore products purchased by domestic consumers and firms (imports) will Net exports will therefore effect causing the quantity of domestic output demanded to This phenomenon is known as the

Question

## Why the aggregate demand curve slopes downward

The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to$500 billion.

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