1 aggregate demand (ad): the economy- wide demand for goods and services. aggregate demand curve...
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Aggregate Demand (AD): the economy-wide demand for goods and services.
Aggregate demand curve relates aggregate expenditure for goods and services to the price level
The aggregate demand curve slopes downward owing to price-level effects:– Wealth Effect (Real Wealth/Real
Balances) – Interest Rate Effect– International Trade Effect
(Substitution)
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Why the Aggregate Demand Curve Slopes Downward: Wealth Effect
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Interest Rate Effect
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International Trade Effect
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The Aggregate Demand Curve
Changes in the price level result in changes in quantity demanded.
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Factors that Affect AD
Consumption– Income– Wealth– Interest Rates– Expectations– Demongraphics– Taxes
Investment– Interest Rates– Technology– Cost of Capital Goods– Capacity Utilization
AD = C + I + G + NXAD = C + I + G + NX Government Spending Net Exports
– Domestic & Foreign Income
– Domestic & Foreign Prices
– Exchange Rates– Government Policy
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Shifts in Aggregate Demand
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Shifts in Aggregate Demand
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Shifts in Aggregate Demand
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Shifting Aggregate Demand Curve
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Effects of a Change in Aggregate Demand
Demand-pull inflation: rapid increases in AD outpaces the growth of AS price level up (inflation).