Answer
The aggregate demand curve slopes downwards because fall in price levels make consumers feel greater purchasing power parity so they spend more and there is larger quantity demanded. Lower price levels reduce the interest rate and this causes greater investment spending. A decline in price levels will cause interest rates to fall then the exchange rate depreciates and this causes greater exports.
Work Step by Step
Understanding this requires knowledge on a global context and how the interactions of other countries through trade explains the graph of aggregate demand and supply.
