Difference between revisions of "Aggregate demand"
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(three main components: personal consumption, private investment, and government expenditures) |
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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.<ref>http://www.investopedia.com/terms/a/aggregatedemand.asp</ref> | Aggregate Demand is the total amount of goods and services, or [[Gross domestic product]] demanded by consumers at a given price level.<ref>http://www.investopedia.com/terms/a/aggregatedemand.asp</ref> | ||
| − | * "Aggregate demand can be broken down into three main components: personal consumption (C), private investment (I), and government expenditures (G). The relationship can be summed up with this formula: AD = C + I + G."<ref>[http://www.thefreemanonline.org/featured/the-great-depression-according-to-milton-friedman/ The Great Depression According to Milton Friedman] </ref> | + | * "Aggregate demand can be broken down into three main components: [[personal consumption]] (C), [[private investment]] (I), and [[government expenditures]] (G). The relationship can be summed up with this formula: AD = C + I + G."<ref>[http://www.thefreemanonline.org/featured/the-great-depression-according-to-milton-friedman/ The Great Depression According to Milton Friedman]</ref> |
==Aggregate Demand Curve== | ==Aggregate Demand Curve== | ||
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The aggregate demand curves downwards. There are various reasons for this, including: | 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. | *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. | + | *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. | + | *A lower price level improves the international competitiveness of a country, resulting in higher net [[exports]]. |
==References== | ==References== | ||
Latest revision as of 01:09, July 13, 2016
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 can be broken down into three main components: personal consumption (C), private investment (I), and government expenditures (G). The relationship can be summed up with this formula: AD = C + I + G."[2]
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.
