The Aggregate Demand Curve

• Aggregate demand is the total demand across an entire economy
• The aggregate demand curve is downward sloping, indicating an inverse relationship between average prices and total demand
• Changes in consumer spending, investment, government spending, and net exports can shift the aggregate demand curve

This module discusses the aggregate demand curve and the factors that can cause it to shift. In microeconomics, the demand curve is plotted with price and quantity, but in macroeconomics, aggregate demand represents the total demand across an entire economy. The aggregate demand curve is downward sloping, indicating an inverse relationship between average prices and total demand. Changes in components such as consumer spending, investment, government spending, and net exports can shift the aggregate demand curve. For example, an increase in interest rates can lead to a decrease in consumer spending and investment, causing aggregate demand to fall. Conversely, an increase in disposable income can lead to an increase in consumption and investment, shifting the curve to the right. An exchange rate appreciation can decrease demand for exports and increase demand for imports, leading to a leftward shift in the curve. Lastly, an election may prompt the government to increase spending, boosting aggregate demand and shifting the curve to the right.