- "In macroeconomics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time."
The total demand for and supply of goods and services in an economy. Aggregate demand and supply determine the overall level of output, price levels, and employment rates in an economy.
Gross Domestic Product (GDP): GDP refers to the total value of goods and services produced in a country's economy during a certain period. It is a widely used measure of the size and health of a country's economy.
Inflation: Inflation is the rate at which the prices of goods and services are increasing in an economy. It is often measured using an inflation rate index, such as the Consumer Price Index (CPI).
Unemployment: Unemployment refers to the percentage of people who are actively seeking jobs but unable to find employment. It is an important metric of economic health, and is often broken down into different categories, such as structural and cyclical unemployment.
Fiscal Policy: Fiscal policy refers to the government's use of spending and taxation to influence the economy. It is often used in conjunction with monetary policy to achieve macroeconomic goals.
Monetary Policy: Monetary policy refers to the actions of a central bank to control the supply and cost of money in an economy. This is often done through adjustments to interest rates or the amount of money held in reserve by banks.
Aggregate Demand: Aggregate demand refers to the total amount of goods and services that consumers, businesses, and the government are willing to purchase in an economy at a given price level.
Aggregate Supply: Aggregate supply refers to the total amount of goods and services that producers are willing and able to create and sell in an economy at a given price level.
Long-run and Short-run Economic Growth: Economic growth refers to the increase in the overall output of an economy over time. This can be achieved through an increase in productivity or an increase in inputs such as labor and capital.
Business Cycles: Business cycles refer to the fluctuations in economic activity that occur over time. These cycles are often characterized by periods of expansion and contraction, and can be affected by a range of factors including government policy, technological change, and international trade.
Economic Indicators: Economic indicators are statistics that provide insight into the health of an economy. Examples include GDP, inflation, and unemployment rates. These indicators are often used by policymakers and analysts to make informed decisions about economic policy.
Perfect competition: Perfect competition in aggregate demand and supply is a type where there is a large number of buyers and sellers, and competition is purely based on the market price. There are no barriers in entry and exit in the market.
Monopoly: Monopoly in aggregate demand and supply is a type where there is only one supplier or producer in the market, so there is no competition. The monopolist has complete control over the price and supply of goods and services.
Oligopoly: Oligopoly in aggregate demand and supply is when there are few suppliers of a particular product, and they have the power to influence the price and supply due to the limited competition.
Monopsony: Monopsony in aggregate demand and supply is a type where there is only one buyer in the market, and it has control over the price and supply of goods and services.
Supply shock: A supply shock in aggregate demand and supply is due to any sudden or unexpected change in the supply of a particular commodity, creating a sudden shift in the supply curve.
Demand shock: A demand shock in aggregate demand and supply is a change in the aggregate demand due to factors such as increased income or government policies.
Fiscal policy: Fiscal policy involves government interventions in the economy that influence aggregate demand and supply. It mainly deals with taxation, government spending, and borrowing policies.
Monetary policy: Monetary policy involves the central bank's interventions in the economy to influence interest rates and money supply, which affects the aggregate demand and supply.
Structural unemployment: Structural unemployment in aggregate demand and supply is when there is a mismatch between the skills and job openings and affects the supply curve.
Cyclical unemployment: Cyclical unemployment occurs during the economic recessions and has its impact on the aggregate demand, leading to a shift in the demand curve.
- "Consumer spending, investment, corporate and government expenditure, and net exports make up the aggregate demand."
- "The aggregate demand curve is plotted with real output on the horizontal axis and the price level on the vertical axis."
- "While it is theorized to be downward sloping, the Sonnenschein-Mantel-Debreu results show that the slope of the curve cannot be mathematically derived from assumptions about individual rational behavior."
- "The downward-sloping aggregate demand curve is derived with the help of three macroeconomic assumptions about the functioning of markets: Pigou's wealth effect, Keynes' interest rate effect, and the Mundell-Fleming exchange-rate effect."
- "The Pigou effect states that a higher price level implies lower real wealth and therefore lower consumption spending, giving a lower quantity of goods demanded in the aggregate."
- "The Keynes effect states that a higher price level implies a lower real money supply and therefore higher interest rates resulting from financial market equilibrium, in turn resulting in lower investment spending on new physical capital and hence a lower quantity of goods being demanded in the aggregate."
- "The Mundell-Fleming exchange-rate effect is an extension of the IS-LM model, describing the short-run relationship between an economy's nominal exchange rate, interest rate, and output."
- "There are many factors that can shift the AD curve. Rightward shifts result from increases in the money supply, in government expenditure, or in autonomous components of investment or consumption spending, or from decreases in taxes."
- "According to the aggregate demand-aggregate supply model, when aggregate demand increases, there is movement up along the aggregate supply curve, giving a higher level of prices."
- "It is often called effective demand, though at other times this term is distinguished."
- "Aggregate demand is expressed contingent upon a fixed level of the nominal money supply."
- "The Mundell-Fleming model portrays the short-run relationship between an economy's nominal exchange rate, interest rate, and output."
- "The aggregate demand curve illustrates the relationship between two factors: the quantity of output that is demanded and the aggregate price level."
- "The Pigou effect states that a higher price level implies lower real wealth and therefore lower consumption spending."
- "The Keynes effect states that a higher price level implies a lower real money supply and therefore higher interest rates resulting from financial market equilibrium, in turn resulting in lower investment spending on new physical capital."
- "Rightward shifts result from increases in the money supply, in government expenditure, or in autonomous components of investment or consumption spending, or from decreases in taxes."
- "According to the aggregate demand-aggregate supply model, when aggregate demand increases, there is movement up along the aggregate supply curve."
- "When aggregate demand increases, there is movement up along the aggregate supply curve, giving a higher level of prices."
- "The Sonnenschein-Mantel-Debreu results show that the slope of the aggregate demand curve cannot be mathematically derived from assumptions about individual rational behavior."