AP Economics Mr. Bernstein Module 17: Aggregate Demand: Introduction and Determinants March 10, 2015

AP Economics Mr. Bernstein Aggregate Demand: Intro and Determinants Objectives - Understand each of the following: How the aggregate demand curve illustrates the relationship between the aggregate price level and the quantity of aggregate output demanded in the economy How the wealth effect and interest rate effect explain the aggregate demand curve’s downward slope What factors can shift the aggregate demand curve 2

AP Economics Mr. Bernstein Aggregate Demand The relationship between aggregate price level demand and the aggregate quantity of output demanded (C + I + G + X N ) (notice labels …NOT P and Q) 3

AP Economics Mr. Bernstein The AD Curve is Downward Sloping NOT due to the Law of Demand, which is driven by substitutes “Wealth Effect” When prices fall, purchasing power rises, increasing C 4

AP Economics Mr. Bernstein The AD Curve is Downward Sloping “Net Export Effect” Lower US prices increase X N “Interest Rate Effect” Lower prices lead to lower  expectations, which lead to lower nominal interest rates…which lead to increase in I 5

AP Economics Mr. Bernstein AD Curve Shifters  I,  C,  G or  X N  Expectations  Wealth  Existing Capital Stock  s in Fiscal, Monetary Policy Signaling of future policy 6