The aggregate expenditure (AE) curve is drawn on the basis of given a given constant price level. Changes in price level cause shifts in AE curve. A rise in prices of goods and services causes a downward shift in the AE curve while a fall in price leads to upwards shift of the curve. AE0 is the original aggregate expenditure curve based on price level rises to P1, the AE curve shifts being caused by the increase in price level form P0 to P1. And when price level and aggregate spending are thus negatively related. The causes of this negative relationship between price level and aggregate expenditure can be explained by analysing effects of price changes on the two components of AE, viz., desired private consumption expenditure and desired net exports.
