2. 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. 170 160 150 140 PRICE LEVEL 130 120 110 AD 100 50 100 700 0 100 200 300 400 500 600 OUTPUT (Billions of dollars) causing the quantity of output demanded to As the price level falls, the purchasing power of households' real wealth will 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 in 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