AGGREGATE DEMAND (AD)

Question 1

Aggregated Demand (AD)

Answer 1

The amount of total spending on domestic goods and services in an economy at a given price level

Question 2

Aggregated Demand (AD) Curve

Answer 2

The relationship between the Price Level and the level of aggregate output (real GDP) demanded

Question 3

Why is AD curve slopes downward?

Answer 3

1. Wealth Effect: Affects consumption
   P ↑ → wealth ↓ → consumer spending ↓ → rGDP ↓
2. Interest Rate Effect: Affects Investment
   P ↑ → interest rate ↓ → investment spending ↓ → rGDP ↓
3. The foreign Purchases Effect: Affects Export
   P of US good ↑ → US goods and services become more expensive to foreigners → export ↓ → rGDP ↓

Question 4

What factors shift AD curve?

Answer 4

Consumption spending ↑ ⇒ AD ↑ → AD shifts right
Investment spending ↑ ⇒ AD ↑ → AD shifts right
Government spending ↑ ⇒ AD ↑ → AD shifts right
Positive net export ↑ ⇒ AD ↑ → AD shifts right

Question 5

What is C+ I+G+(X − M)?

Answer 5

Consumption + Investment + Government spending + (Net Exports)