The third reason for the downward slope of the aggregate demand curve is Mundell

The third reason for the downward slope of the aggregate demand curve is Mundell

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The third reason for the downward slope of the aggregate demand curve is Mundell- Fleming's exchange-rate effect. Recall that as the price level falls the interest rate also  tends to fall. When the domestic interest rate is low relative to interest rates available in  foreign countries, domestic investors tend to invest in foreign countries where return on  investments is higher. As domestic currency flows to foreign countries, the real  exchange rate decreases because the international supply of dollars increases. A  decrease in the real exchange rate has the effect of increasing net exports because  domestic goods and services are relatively cheaper. Finally, an increase in net exports  increases aggregate demand, as net exports is a component of aggregate demand.  Thus, as the price level drops, interest rates fall, domestic investment in foreign  countries increases, the real exchange rate depreciates, net exports increases, and 
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The third reason for the downward slope of the aggregate demand curve is Mundell

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