1 aggregate demand (ad): the economy- wide demand for goods and services. aggregate demand curve...
Post on 21-Dec-2015
216 views
TRANSCRIPT
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
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
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).