In what situation does the aggregate demand curve slope downwards?

The aggregate demand curve slopes downwards primarily due to the inverse relationship between the overall price level and the quantity of goods and services demanded in an economy. When the overall price levels decrease, consumers and businesses tend to purchase more goods and services because their purchasing power increases.

Lower prices can lead to increased consumption because households find it easier to afford everyday items and luxuries alike, while businesses may find it more viable to invest in production and expansion. Additionally, lower price levels can encourage more exports, as goods become cheaper for foreign buyers, further boosting demand. This dynamic illustrates the downward slope of the aggregate demand curve: as prices fall, the quantity demanded rises, and vice versa.

Therefore, the scenario where overall price levels decrease effectively supports a downward-sloping aggregate demand curve.