Part 4 - Stretch Your Thinking- 1T. The wealth effect, interest-rate effect. and exchange-rate effect all help explain why the aggregate demand curve is downward sloping. Phyllis. a fellow student in your AP Macro class. suggests that the substitution effect that you learned about in Unit 1 also explains why aggregate demand curve is downward sloping. She reasons that since it explains why a market demand curve is downward sloping. it must also be valid for aggregate demand. Explain why Phyllis is wrong