4.3.4—AD curve shape

The AD curve shows the total real output demanded at different average price levels, holding other determinants constant. It slopes downward in the standard model.

A lower price level can increase real purchasing power, reduce interest rates and improve net exports, so planned real expenditure rises. These are mechanisms, not movements of the curve’s determinants.

A fall in the domestic price level can make exports more competitive and reduce the money needed for transactions, increasing real output demanded along AD.

AD is not the household demand curve for one good and its vertical axis is the price level, not one product’s price.