natinal income & price determination

aggregate

combine all prices and all quanities

aggregate demand

is all the goods and services (real GDP) that buyers all willing and able to purchase at different price levels

aggregate demand curve

is the demand by consumers, government, businesses, and foreign countries.

the wealth effect

higher price levels reduce the purchasing power of money. this decreases the quanity of expenditures

interest rate effect

when the price level increases, lenders need to change higher interest rates to get a real return on loans.

foreign trade effect

when the u.s. price levels rise, foreign buyers purchase fewer u.s. goods and americans buy more foreign goods