Why is the aggregate demand curve negatively sloped? What are two effects that can explain this characteristic?
The aggregate demand curve is negatively-sloped, because of the inverse relationship between aggregate expenditures and the price level. Hence, if the price level decreases, the aggregate demand increases and vice-versa.
The factors that influences the aggregate demand curve, making it negatively-sloped are: interest rate, wealth and net export.
The wealth factor refers to the value of money assets. The more decreased the price level is, the more increased the power of wealth factor become. Hence, the power of purchasing more goods at the same price, occurs when the price level decreases.
Other factor that influences the aggregate demand curve is the interest rate. It is well known that if the price level increases, the interest rate also increases.
The third factor that influences the aggregate demand curve is the net export. Hence, when the price level increases, the quantity of exports decreases and the quantity of imports increases.