Notes 12 - Aggregate Supply and Aggregate Demand...

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Aggregate Supply and Aggregate Demand, Supply-Side Policy We haven’t talked about the relationship expenditures and income to prices. And we haven’t talked about production (the supply-side). Now we will. Aggregate Demand – the total quantity of goods and services demanded by households, businesses, government and the international sector at various prices. Aggregate Demand Curve illustrates the negative relationship between the aggregate output of goods and services (real GDP demanded) and the overall price level. (Figure 18.2) All points on the AD Curve are equilibriums in the goods market (AE = Y) and the money market (MD = MS) The price level is not the same as prices in regular demand curves, even though it looks the same. If the price level rises on the AD curve, general prices are rising; there is inflation. On the horizontal Axis, price changes are represented by some measure of inflation, such as GDP deflator. Shifts in AD: Anything that changes AE or Money Market can increase, shift AD.
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