Aggregate Demand

aggregate demand

A graphical model that shows the relationship between the price level and spending on real GDP.

real wealth effect

Occurs when a change in the price level leads to a change in consumer spending due to the purchasing power of assets.

interest rate effect

Occurs when a change in the price level leads to a change in interest rates, affecting investment spending and consumption.

exchange rate effect

When a change in the price level in one country leads to increases in foreign purchases of that country's goods.

change in aggregate demand

A shift of the entire AD curve that occurs due to changes in categories of AD unrelated to price level.

fiscal policy

The use of taxes, government spending, or government transfers to affect real GDP.

monetary policy

The use of money to impact interest rates, which in turn affects real GDP.

interest-sensitive consumption

Spending that is sensitive to interest rates, particularly in the 'C' category of real GDP.

movement along AD

A change in price that results in changes in the amount of output demanded.