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Aggregate Demand
Measures the total value of all goods and services produced in an economy, expressed as AD=C+I+G+XnAD = C + I + G + XnAD=C+I+G+Xn (consumption, investment, government spending, and net exports).
Short-Run Aggregate Supply (SRAS)
Upward sloping; higher prices lead to increased production.
Long-Run Aggregate Supply (LRAS)
Vertical curve; unaffected by price levels.
Shifts Aggregate Demand
consumption (C), investment (I), government spending (G), and net exports (Xn)
Positive Expectations
Anticipation of higher inflation, future income, or profits increases consumer spending and investments.
Negative Expectations
Recession fears cause reduced consumer and business spending.
Fiscal Policy
Increases consumer wealth and investments, driving real GDP up.
Monetary Policy
Strengthens the dollar, raises the cost of local goods, and lowers investment and consumer spending.
Keynesian Theory
Aggregate demand (AD) is influenced by both private and public sector decisions.
Classical Theory
The economy is self-regulating and can reach potential GDP/full employment naturally.
