Wealth effect is one of the explanations of a downward aggregate demand curve.
When the price level falls, the real value (purchasing power) of wealth increases. An increase in wealth will induce people to increase their consumption. The consumption component of aggregate demand will thus be greater at lower price levels than at higher price levels. The tendency for a change in the price level to affect real wealth and thus alter consumption is called the wealth effect; it suggests a negative relationship between the price level and the real value of consumption spending.