,Aggregate demand
Aggregate demand is a schedule or curve that shows
the various amounts of real domestic output that
domestic and foreign buyers collectively will desire to
purchase at each possible price level.
It shows an inverse relationship between price level
and real domestic output.
When the price level rises, the quantity of real GDP
demanded decreases, and vice versa.
,The Aggregate Demand Curve
, Inverse relationship between
price level and real output
Real balances effect:
When price level falls (rises), the purchasing power of
existing financial balances [accumulated savings
balance] rises (falls), which can increase (decrease)
spending.
e.g., a higher prices level erodes/destroy the purchasing
power of savings accounts or bonds, the public is
poorer in real terms and will reduce its spending.
Aggregate demand is a schedule or curve that shows
the various amounts of real domestic output that
domestic and foreign buyers collectively will desire to
purchase at each possible price level.
It shows an inverse relationship between price level
and real domestic output.
When the price level rises, the quantity of real GDP
demanded decreases, and vice versa.
,The Aggregate Demand Curve
, Inverse relationship between
price level and real output
Real balances effect:
When price level falls (rises), the purchasing power of
existing financial balances [accumulated savings
balance] rises (falls), which can increase (decrease)
spending.
e.g., a higher prices level erodes/destroy the purchasing
power of savings accounts or bonds, the public is
poorer in real terms and will reduce its spending.
