The aggregate demand (AD) curve in macroeconomics depicts the relationship between the economy’s total demand for goods and services—known as aggregate demand—and the overall price level. It slopes downward, showing that a decrease in the price level increases the quantity of real GDP demanded, while an increase in the price level reduces it.

This inverse relationship arises from three primary mechanisms: the real wealth effect, where lower prices boost purchasing power and real wealth, encouraging more spending; the interest rate effect, where falling prices reduce interest rates, stimulating investment and consumption; and the exchange rate effect, where a lower price level appreciates the currency, making exports less competitive but imports cheaper, though the net effect supports higher demand.