Aggregate Demand Analysis

Aggregate demand represents the inverse correlation between the total amount of real output demanded within the economy at various price levels in a particular period of time (Investopedia). Essentially, if the price of a product fluctuates, the rate of total spending will change along with the quantity of real output demanded (Brue, McConnell, & Flynn, 2014). The determinants, which affect the aggregate demand include consumer spending, investment spending, government spending, and net export spending (Brue, McConnell, & Flynn, 2014). These determinants, also known as ‘aggregate demand shifters’, cause the aggregate demand curve to shift as a change in one or more of these variables occur (Brue, McConnell, & Flynn, 2014). For example, a rightward …show more content…
For example, if the price level remains steady and net exports rise, then the aggregate demand will also increase and vice-versa (Brue, McConnell, & Flynn, 2014). A logical explanation for this increase and decrease in net export spending are exchange rates (Brue, McConnell, & Flynn, 2014). These rates greatly affect the value of the U.S. dollar and purchasing power both domestically and abroad. Essentially, any depreciation in the exchange rate of the U.S. Dollar will limit the amount of domestic imports and decrease aggregate demand. However, exports will more than likely experience a surge and increase aggregate demand. This is largely due to an increase in the purchasing power overseas to acquire U.S. …show more content…
These determinants, also known as ‘aggregate supply shifters’, cause the aggregate supply curve to shift as a change in one or more of these variables increases or decreases the production cost per-unit at various price levels (Brue, McConnell, & Flynn, 2014). For example, a rightward shift depicts an increase in aggregate supply, while a leftward shift reflects a decrease in aggregate supply (Brue, McConnell, & Flynn,