What does the aggregate demand curve show? What factors change and what factors remain the same...

What does the aggregate demand curve show? What factors change and what factors remain the same when there is a movement along the aggregate demand curve

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Expert Solution

An aggregate demand curve shows the total spending on domestically produced final goods and services at different price level. It includes consumption expenditure, government spending, net exports and investment expenditure. It is a downward sloping curve as an increase in price level reduces the the total spending in the economy.

Movement along AD curve is change in the amount of output demanded that occurs due to change in the price level in the economy. When there is a movement along the aggregate demand curve, the amount of real money supply changes due to change in price level, which also affects the interest rate. Since there is a change in interest rate, there is a change in the investment expenditure as well, along with change in consumption expenditure due to higher prices. So the overall income or output in the economy changes.

Rahul Sunny answered 2 years ago

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