Which of the following is NOT a reason why aggregate demand is downward sloping?

Question

Which of the following is NOT a reason why aggregate demand is downward sloping?

"As the domestic price level falls, domestic goods become more attractive to foreign buyers and foreign goods become less attractive to domestic buyers, raising the quantity of all domestic goods demanded."

"As the domestic price level falls, buyers become more wealthy in real terms, which increases the quantity of all domestic goods demanded. "

"As the domestic price level falls, real interest rates decline, increasing the demand for investment and consumption, which increases the quantity of all domestic goods demanded."

All of the above are reasons why aggregate demand is downward sloping.

"As the domestic price level falls, domestic goods become more attractive to foreign buyers and foreign goods become less attractive to domestic buyers, raising the quantity of all domestic goods demanded."

"As the domestic price level falls, buyers become more wealthy in real terms, which increases the quantity of all domestic goods demanded. "

"As the domestic price level falls, real interest rates decline, increasing the demand for investment and consumption, which increases the quantity of all domestic goods demanded."

All of the above are reasons why aggregate demand is downward sloping.

Explanation / Answer

The correct option is (D).

AD = C+I+G+NX.

Thus as price level falls the domestic consumption investment, government spending and net exports(NX) all fall this is due to changes in purchasing power, the changes in the real interest rate and exchange rate.

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