Aggregate Demand and Aggregate Supply - Aggregate Demand

6 important questions on Aggregate Demand and Aggregate Supply - Aggregate Demand

What is a negative demand shock referring to?

It refers to a fall in the aggregate demand or a shift to the left
for the whole economy.

What is the curve that shows the relation ship between aggregate price level and the quantity of aggregate output demanded? And who are they demanded by?

The aggregate demand curve shows the relation ship between aggregate price level and the quantity of aggregate output demanded.
the aggregate output demanded by the firms, the government and the rest of the world.

Why is the aggregate demand curve is downward sloping? and what are the three reason why aggregate demand curve is downward sloping?

  • The curve is downward sloping indicating a negative relationship between the aggregate price level and and the quantity of aggregate output demanded
  • due to
    • to the wealth effect, of a change in the aggregate price level,
    • to the Interest rate effect of a change in the aggregate price level.
    • to the interest rate effect  of a change in the aggregate price level
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What is the difference between the demand curve's downward slope and the aggregate demand curve's downward slope?

  • For the demand curve the demand for a good is downward sloping because of an increase in price of a good makes it more expensive to by thus decreasing demand
  • However, the AD is sloped downwards because of a simultaneous change in price of ALL final goods and services, and changes in the composition of goods and services in consumer spending aren't relevant to the aggregate demand curve

What is the effect on consumer spending that arises from the effect of a change in the aggregate price level on the purchasing power of consumer's assets?

the effect on consumer spending that arises from the effect of a change in the aggregate price level on the purchasing power of consumer's assets is called The wealth effect of a change in the aggregate  price level

From where does the AD curve derive from?

It derives form the Income-Expenditure model

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