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Aggregate Demand - we mean that at arbitrarily given prices...

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Aggregate Demand (A) Meaning : Aggregate demand is the total demand made by all members of the society for all goods and services. In macroeconomic analysis such aggregate demand is a function of the general level of prices . Here, the price of any individual good or the demand for it from an individual member is not under consideration. In fact it is the demand for all goods and its dependence on the level of all prices that is being analyzed. Such a general level of prices is in the form of a price index which is usually Consumer’s Price Index or CPI. The demand on the other hand represents demand for real national income which can be denoted as Yr . Aggregate Demand (AD) is then a function of the price level (P) and the relation between the two can be expressed in the form of a schedule. By scheduled pairs of prices and AD quantities
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Unformatted text preview: we mean that at arbitrarily given prices, expected quantities demanded are related. On the basis of a demand schedule, as shown below, we can also represent it graphically. CURVE AD Schedule Price level AD quantities or Yr 6 10 5 12 4 18 3 30 2 44 1 60 In the AD Schedule we notice an inverse relationship between level of prices and the quantities or real income . As the price level falls (through 6 to 1) Aggregate Demand goes on increasing (from 10 through 60). In the figure, the same information has been presented graphically (in the form of the AD curve). In the figure price has been measured along the vertical and AD quantity along the horizontal axis. The inverse relation between the two is apparent since the AD curve slopes downwards ....
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