ECON 1102 Lecture Notes - Lecture 12: Aggregate Supply, Aggregate Demand, Economic Equilibrium
Document Summary
Identify how the aggregate demand curve relates to the aggregate expenditures model. (cid:120) We now move from our assumption of perfectly inflexible (sticky) prices in the aggregate expenditures model to an assumption that prices change over time, becoming perfectly flexible in the long run. The aggregate demand-aggregate supply model (ad-as model) is the macroeconomic model that uses aggregate demand and aggregate supply to explain the price level and real domestic output. Aggregate demand is a schedule or curve that shows the total quantity of goods and services demanded (purchased) at different price levels. A change in the price level causes a movement along the aggregate demand curve. But a change in any of the determinants of aggregate demand will shift the aggregate demand curve, leading to higher or lower aggregate demand at any given price level. The determinants of aggregate demand include changes in consumer spending, changes in investment spending, changes in government spending, and changes in net export spending.
