The aggregate demand curve represents the total of consumption, investment, government purchases, and net exports at each price level in any period. It slopes downward because of the wealth effect on consumption, the interest rate effect on investment, and the international trade effect on net exports.

What are the three reasons why aggregate demand is downward sloping?

There are three basic reasons for the downward sloping aggregate demand curve. These are Pigou's wealth effect, Keynes's interest-rate effect, and Mundell-Fleming's exchange-rate effect.

Why does a slope downward?

The demand curve slopes downwards because as we lower the price of x, the demanded starts growing. At a lower price, purchasers have an extra income to spend on buying the same good, so they can buy greater of it. This ends in an inverse relationship between price and demand.