Aggregate Demand and Supply

what is aggregate demand

its the relationship between the total quantity of goods and services demanded and the price level

why is the aggregate demand curve different from the a curve for an individual product

there is no substitution effect or no cheaper option 

what does the aggregate demand curve look like

downward sloping

real balance effect

as the price level falls cash balances will purchase more

interest rate effect

lower price levels will lower interest rates which will increase investment

Keynes effect is the same as

interest rate effect

foreign purchase effect

lower prices make domestic goods more attractive than foreign goods which will increase net exports

what is supply

the relationship between the output produced and the price level

what happens in the short run aggregate supply curve

prices and wages are not flexible downward “Sticky”

in the short run can there be periods of unemployment

YES

horizontal rage or Keynesian range 

the economy can produce more output without increasing the price level (the economy is in recession)

intermediate range

economy is nearing full employment, the price level starts to rise

vertical or classic range

economy is at full employment