Aggregate Demand (Definition and Why Downward Sloping)
Aggregate demand is defind as being the total demand within an economy at any given time or price. It is the amount of goods and services that can be purchased at all possible price levels.
The AD curve is downward sloping because the lower the price the higher the quantity demanded.
Referenced from
http://en.wikipedia.org/wiki/Aggregate_demand



Prices increase => Real GDP decreases
Prices decrease => Real GDP increases

1) Real Balance effect
prices increase => value of savings falls => C decreases => AE decreases => Real GDP decreases

2) Interest Rate effect
prices increase=> inflation=> interest rates increase=> Investment spending decreases=> AE decreases=> Real GDP decreases

3) Foreign Trade effect
prices increase=>export decreases=> imports increase => AE decreases=? Real GDP decrease




The aggregate demand curve is downward sloping because of the real balance effect, the

interest rate effect, and the foreign trade effect. When prices rise, the three effects cause real

GDP to decrease. When prices fall, the three effects cause real GDP to increase.