Aggregate Demand Curve
- AD is the demand by consumers, businesses, government, and foreign nations
- changes in price level causes a move along the curve not the shift of the curve
- shows the amount of real GDP that the private, public and foreign sector collectively desire to purchase at each possible price level
- relationship between price level and level of real GDP is inverse
why AD is downward sloping
wealth effect, interest rate effect, foreign trade effect
Four Determinants:
- Change in Consumer Spending:
- Consumer Wealth
- Consumer Expectations
- Household Indebtedness
- Taxes
- Change in Investment Spending:
- Real Interest Rate
- Future Business Expectations
- Productivity and Technology
- Business Taxes
- Change in Government Spending:
- More; AD shifts right
- Less; AD shifts left
- Change in Net Exports:
- Exchange Rates
- National Income Compared to Abroad
AD Formula:
C+Ig+G+Xn
Government Spending:
More Government Spending= Increase in AD = Rightward Shift
Less Government Spending = Decrease in AD = Leftward Shift
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