Aggregate demand

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Aggregate Demand is the total amount of goods and services, or Gross domestic product demanded by consumers at a given price level.[1]

Aggregate Demand Curve

Aggregate demand is represented by the Aggregate demand curve. The aggregate demand curve looks similar to a regular demand curve, however the Y-axis represents price level, and the X-axis represents real output.

The aggregate demand curves downwards. There are various reasons for this, including:

  • The lower the price level, the richer individuals perceive themselves to be and the more they consume.
  • When price levels are low, the reserve bank tends to decrease interest rates, resulting in higher consumption.
  • A lower price level improves the international competitiveness of a country, resulting in higher net exports.

References

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