Before moving deep into the details, let’s just go through the basics. For details, manuals as aggregate demand homework answers you can get detailed idea.
How can we define aggregate demand?
Aggregate demand, also termed as AD is the aggregate of all the total products and goods of an economy within a specific time. Then it can be referred to as the aggregate demand of that particular period. It can also be said to be as the total GDP of a state or a region, depending on the basis of the calculation.
When plotted in a graphical way, the real output is often put in the horizontal or the x axis, on the y axis or the vertical axis; we measure the level of price of that.
As seen, it is plotted in this manner.
It is a downward sloping curve. The reasons for its characteristics are due to 3 effects:
- Pigou’s effect
- Rate of interest effect of Keynes, and
- Mundell and Fleming rate of exchange effect
These 3 have different types of effect that have given rise to this unique feature of the aggregate demand curve. We will get to know how it affects it. But before that, it is also to inform you that if you need any type of help to solve for the aggregate demand homework answers, there are many sites that offer you this type of services.
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Factors for graphical representation:
Now let us know, how those above factors give a unique graphical diagram.
- The Pigou effect says that a low real money income is always implied by a greater level of price. Thus, in turn, the a lower quantity of goods and services will be demanded
- Keynes effect says that real money will lower when there is a greater level of price in the market. Thus, it results in increasing of the Interest rates from the market equilibrium of finance which again results in lowering of the investment spend on the new capital products and thus finally it lowers the demand for the total quantity of the goods and services.
- Mundell and Fleming rate of exchange actually deals with the closed economy or a small economy which is an open It mainly focuses on the nominal exchange of the economy, rate of the interest and the output.
It can be said that the graphical curve that represents the aggregate demand actually provides a bridge between 2 factors
- The quantity of the output that is demanded
- The aggregate price level
Aggregate demand is actually dependent on the money supply level which is mainly fixed and is generally nominal.
Shifting of the aggregate demand curve
Aggregate demand curve shifts due to several reasons.
Reasons for the shifting of the right and left of the aggregate demand curve:
- If the curve is shifting in the right direction, that implies the fact that at the same price level there is an increase in the real GDP
- Whereas, in case of a leftward shift, it means that at price level being same, the demand for the real GDP has decreased.
In the above picture, we see how the aggregate demand curve shifts its location.
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