aggregate demand

Examples of aggregate demand in the following topics:

• The Relationship Between the Phillips Curve and AD-AD

  • Changes in aggregate demand cause movements along the Phillips curve, all other variables held constant.
  • The Phillips curve and aggregate demand share similar components.
  • The Phillips curve is the relationship between inflation, which affects the price level aspect of aggregate demand, and unemployment, which is dependent on the real output portion of aggregate demand.
  • Let's assume that aggregate supply, AS, is stationary, and that aggregate demand starts with the curve, AD1.
  • As aggregate demand increases from AD1 to AD4, the price level and real GDP increases.

• Reasons for and Consequences of Shift in Aggregate Demand

  • A short-run shift in aggregate demand can change the equilibrium price and output level.
  • In economics, aggregate demand is the total demand for final goods and services at a given time and price level.
  • The aggregate supply-aggregate demand model uses the theory of supply and demand in order to find a macroeconomic equilibrium.
  • An increase in any of the components of aggregate demand shifts the AD curve to the right.
  • The aggregate demand curve shifts to the right as a result of monetary expansion.

• How Fiscal Policy Relates to the AD-AS Model

  • Expansionary policy shifts the aggregate demand curve to the right, while contractionary policy shifts it to the left.
  • These actions lead to an increase or decrease in aggregate demand, which is reflected in the shift of the aggregate demand (AD) curve to the right or left respectively .
  • Changes in any of these components will cause the aggregate demand curve to shift.
  • It boosts aggregate demand, which in turn increases output and employment in the economy.
  • Since government spending is one of the components of aggregate demand, an increase in government spending will shift the demand curve to the right.

• The Impact of Monetary Policy on Aggregate Demand, Prices, and Real GDP

  • Changes in a country's money supply shifts the country's aggregate demand curve.
  • This brings us to the aggregate demand  curve.
  • The aggregate demand curve illustrates the relationship between two factors - the quantity of output that is demanded and the aggregated price level.
  • The aggregate demand curve assumes that money supply is fixed.
  • This decrease will shift the aggregate demand curve to the left.

• Demand for Public Goods

  • The aggregate demand curve for a public good is the vertical summation of individual demand curves.
  • The aggregate demand for a public good is derived differently from the aggregate demand for private goods.
  • This is in contrast to the aggregate demand curve for a private good, which is the horizontal sum of the individual demand curves at each price.
  • The sum of the individual marginal benefit curves (MB) represent the aggregate willingness to pay or aggregate demand (∑MB).
  • The intersection of the aggregate demand and the marginal cost curve (MC) determines the amount of the good provided.

• Macroeconomic Equilibrium

  • In economics, the macroeconomic equilibrium is a state where aggregate supply equals aggregate demand.
  • When the demand increases the aggregate demand curve shifts to the right.
  • The aggregate supply determines the extent to which the aggregate demand increases the output and prices of a good or service.
  • When the aggregate supply and aggregate demand shift, so does the point of equilibrium.
  • The aggregate demand curve shifts and the equilibrium point moves horizontally along the aggregate supply curve until it reaches the new aggregate demand point.

• Explaining Fluctuations in Output

  • In the short run, output fluctuates with shifts in either aggregate supply or aggregate demand; in the long run, only aggregate supply affects output.
  • The level of output is determined by both the aggregate supply and aggregate demand within an economy.
  • Aggregate supply and aggregate demand are graphed together to determine equilibrium.
  • In the long-run, the aggregate supply curve and aggregate demand curve are only affected by capital, labor, and technology.
  • This AS-AD model shows how the aggregate supply and aggregate demand are graphed to show economic output.

• Graphing Equilibrium

  • When aggregate demand increases its graph shifts to the right.
  • The aggregate supply and aggregate demand determine the output and price for goods and services.
  • This graph shows the AD-AS model where P is the average price level and Y* is the aggregate quantity demanded.
  • The model is used to show how increases in aggregate demand leads to increases in prices (inflation) and in output.
  • Demonstrate how aggregate demand and aggregate supply determine output and price level by using the AD-AS model

• Demand Schedules and Demand Curves

  • A demand curve depicts the price and quantity combinations listed in a demand schedule.
  • The demand curve of an individual agent can be combined with that of other economic agents to depict a market or aggregate demand curve.
  • Using a demand schedule, the quantity demanded per each individual can be summed by price, resulting in an aggregate demand schedule that provides the total demanded specific to a given price level.
  • The plotting of the aggregated quantity to price pairings is what is referred to as an aggregate demand curve.
  • In this manner, the demand curve for all consumers together follows from the demand curve of every individual consumer.

• Aggregate Expenditure at Economic Equilibrium

  • The economy is constantly shifting between excess supply (inventory) and excess demand.
  • On the aggregate expenditure model, equilibrium is the point where the aggregate supply and aggregate expenditure curve intersect.
  • Classical economists believed in Say's law, which states that supply creates its own demand.
  • Classical economics states that the factor payments (wage and rental payments) made during the production process create enough income in the economy to create a demand for the products that were produced.
  • In this graph, equilibrium is reached when the total demand (AD) equals the total amount of output (Y).