Aggregate Demand

• What is aggregate demand?

  Total demand for goods and services
• What does the equation for aggregate demand measure?

  Total expenditure on goods and services
• What components make up aggregate demand?

  Consumer spending, investment, government spending, net exports
• What does 'net export spending' refer to in the aggregate demand equation?

  Exports minus imports
• How is the aggregate demand curve typically drawn?

  Downward sloping
• What do the axes of the aggregate demand curve represent?

  Price level and real GDP
• Why does the aggregate demand curve slope downwards?

  Inverse relationship between price level and real GDP
• What happens to aggregate demand when the price level falls?

  Aggregate demand increases
• What is the wealth effect?

  Increased purchasing power leads to higher consumption
• How does the trade effect influence aggregate demand?

  Lower price levels make exports more competitive
• What is the interest effect?

  Lower price levels lead to lower interest rates
• How do lower interest rates affect consumption and investment?

  They stimulate higher consumption and investment
• What causes the aggregate demand curve to shift?

  Changes in C, I, G, or X minus M
• What does it mean for aggregate demand to shift right or left?

  Higher or lower levels of aggregate demand
• What are the three effects that explain the downward slope of the aggregate demand curve?

  • Wealth effect: Increased purchasing power boosts consumption
  • Trade effect: Lower prices enhance export competitiveness
  • Interest effect: Lower prices lead to lower interest rates
• What factors can cause changes in C, I, G, and X minus M independent of the price level?

  • Changes in consumer confidence
  • Changes in government policy
  • Changes in global economic conditions