Final answer:
The wealth effect leads to a downward-sloping aggregate demand (AD) curve, as it causes real wealth and consumption to decrease when price levels increase.
Step-by-step explanation:
The wealth effect is one of the reasons why the aggregate demand (AD) curve slopes downward. The wealth effect states that when the price level increases, real wealth diminishes, which in turn reduces consumption. This reduction in consumption due to higher prices contributes to a decrease in the total spending in the economy. Other factors contributing to the downward slope of the AD curve are the interest rate effect and the foreign price effect. The interest rate effect suggests that higher price levels increase the demand for money, raising interest rates and reducing investment. The foreign price effect indicates that an increase in price levels makes domestic goods more expensive relative to foreign goods, decreasing exports and increasing imports. Therefore, the correct answer is: B) A downward-sloping AD curve.