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Aggregate Demand (AD): the economy-wide demand for goods and services.

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)

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Aggregate Demand (AD): the economy-wide demand for goods and services.

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  1. 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)

  2. Why the Aggregate Demand Curve Slopes Downward: Wealth Effect

  3. Interest Rate Effect

  4. International Trade Effect

  5. The Aggregate Demand Curve Changes in the price level result in changes in quantity demanded.

  6. Factors that Affect AD AD = C + I + G + NX • Government Spending • Net Exports • Domestic & Foreign Income • Domestic & Foreign Prices • Exchange Rates • Government Policy • Consumption • Income • Wealth • Interest Rates • Expectations • Demongraphics • Taxes • Investment • Interest Rates • Technology • Cost of Capital Goods • Capacity Utilization

  7. Shifts in Aggregate Demand

  8. Shifts in Aggregate Demand

  9. Shifts in Aggregate Demand

  10. Shifting Aggregate Demand Curve

  11. Effects of a Change in Aggregate Demand Demand-pull inflation: rapid increases in AD outpaces the growth of AS  price level up (inflation).

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