The aggregate demand curve can be thought of just like a demand curve for a firm. When the price level is high, aggregate demand is low; when the price level is low, aggregate demand is high. The aggregate demand curve lies in a plane consisting of the price level and income or output. It shows a downward slope with price level on the vertical axis and income or output on the horizontal axis. As such, the aggregate demand curve outlines the relationship between income or output and the price level. It is important to notice that aggregate demand is a schedule because as the price level changes, the income or output also changes. There are four major components of aggregate demand. The equation for aggregate demand, Y = C(Y - T) + I(r) + G + NX(e), tells much about the nature of both aggregate demand and the curve that represents this schedule.
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This note was uploaded on 12/13/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.