Summary Aggregate Demand/Aggregate Supply Notes

Aggregate Demand and Aggregate Supply:



Aggregate Demand-
 Aggregate demand is a key element of the aggregate demand-aggregate supply
model (AS/AD model).
 Real GDP desired at each price level.
 Inverse Relation ship:
1. Real balances effect
2. interest rate effect
3. Foreign purchases effect

Changes In Aggregate Supply-
 Determinants of aggregate demand: shift factors affecting C, I, G, X
 Two components involved:
 Change in one of the determinants.
 Multiplier effect.

Consumer Spending-
 Consumer wealth
 Consumer expectations
 Household borrowing
 Personal taxes

Investment Spending-
 Real interest rates.
 Expected returns:
 Expectations about future business conditions.
 Technology.
 Degree of excess capacity.
 Business taxes.

Government Spending-
 Government spending increases:
 Aggregate demand increases (as long as interest rates and tax rates don’t
change).
 More transportation projects.
 Government spending decreases:
 Aggregate demand decreases.
 Less military spending.


Net Export Spending-

 National income abroad.
 Exchange rates:
 Dollar depreciation.