1. Aggregate Demand

2. An Introduction to Aggregate Demand and Supply Introducing Aggregate Demand and Supply

3. What is the AD Curve? The Aggregate Demand Curve is: A schedule that shows amounts of real output (real GDP) that buyers collectively desire to purchase at each possible price level. There is an inverse relationship between price and quantity demanded.

4. The Aggregate Demand Curve

5. Why is the AD Curve Downward Sloping? Real Balance / Wealth EffectInterest Rate EffectForeign Trade Effect

6. Real Balance / Wealth Effect A higher price level reduces the real value (purchasing power) of the public's savings or wealth. Wealth also includes physical assets such as houses; as such, a fall in the value of housing reduces the wealth of homeowners. A lower price level makes you seem wealthier while a higher price level makes you seem less wealthy.

7. Interest Rate Effect Assume that the supply of money is fixed. Low price levels will cause interest rates to decrease and result in more consumer spending. If prices rise, consumers and businesses need more money. Therefore, a higher price level increases demand for money. An increase in money demanded drives up the price paid for its use – or the interest. But high interest rates reduce spending and investment.

8. Foreign Trade Effect When our price levels rise relative to foreign prices, foreigners buy less of our stuff and we buy more of their stuff. Exports fall and imports rise. The rise in the price level of our goods reduces the quantity of our goods demanded, and our net exports.

9. Review the Determinants of Aggregate Demand The Factors that shift the aggregate demand curve: Changes in Consumer Spending Changes in Investment Spending Changes in Government Spending Changes in Net Export Spending