Aggregate Demand (Definition and Why Downward Sloping)
Aggregate Demand - Total value of final goods and services that consumers businesses government and those living outside of the country are willing and able to buy at various price levels.
AD is downward sloping:
1) the real balance effect
- price decreases -> autonomous consumption increase
2) Interest rate effect
-Price decreases -> autonomous investment increases
3) Foreign trade effect
- Price decreases -> autonomous exports increase
Determinants of AD
*change in consumption spending
- change in wealth
- change in age of consumer durables
- consumer expectations
* changes in investment spending
- change in interest rates
- change in age of capital goods
- change in the amount of spare capacity
- business expectations
- government regulations
* changes in net exports
- changes in exchange rates
- changes in income levels abroad
- price of foreign goods
- taste of foreigners
Dr. Stephanie Powers, "Aggregate Demand and supply" [ECON 101 at Red Deer College, Winter 2012].