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Unformatted text preview: & Macroeconomics Lecture 6 Aggregate Demand and Aggregate Supply AD = GDP = C + I + G + NX The aggregate demand has the same components as GDP : It shows the goods being demanded by all the components. Consumption: households Investment: firms Government expenditure: government NX (exports imports): international markets AD is a downward sloping curve because it shows a negative (inverse) relationship between price level and AD. It is affected by demand side policies , i.e. policies that are directed towards any of the components. They are short term policies that shift the AD curve. Example: Monetary policies (interest rates and money supply), decreasing the interest rates makes households save less and consume more (increase C). It also increases the firms demand for funds and capital goods, encourages borrowing (increases I). Fiscal policies (government spending and taxes), decreasing income taxes will increase the households disposable incomes and they will consume more or the...
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- Spring '11