Aggregate Demand - Revision history

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User: Aggregate Demand is the relationship between the aggregate price level and the quantity of output. AD is similar to the law of demand that already exists but the factors that affect AD are slightly different than demand.

2018-11-28T19:05:28Z

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Aggregate Demand is the relationship between the aggregate price level and the quantity of output. AD is similar to the law of demand that already exists but the factors that affect AD are slightly different than demand. The factors that affect AD are household consumption, government spending, investment, and net exports. It is important to note that AD is the same in both the short run and the long run. Aggregate Demand represents how a change in a certain price level will change expenditures on all services and goods in an economy. There are several components that make up AD and explain how it works. These are:
*The Effects of Price on Aggregate Demand
*Other Factors Besides Price Effecting Aggregate Demand
*The Multiplier Effect<ref>What is Aggregate Demand [http://www.econport.org/content/handbook/ADandS/AD.html econport]</ref>

'''Aggregate Demand Curves'''<ref>Reasons for and Consequences of Shifts in the Aggregate Demand Curve [https://www.boundless.com/economics/textbooks/boundless-economics-textbook/aggregate-demand-and-supply-24/aggregate-demand-108/reasons-for-and-consequences-of-shifts-in-the-aggregate-demand-curve-415-12512/ boundless]</ref><br />
Two specific AD representations are useful to consider:
*Keynesian Cross: The Keynesian Cross is a simple illustration of the relationship between aggregate demand and desired total spending (linear at 45 degrees). The intersecting AD line will generally have an upwards slope, under the assumption that increased national output should result in increased disposable income.
*Aggregate Demand/Aggregate Supply Model (AD/AS):The x-axis represents the overall output, while the y-axis represents the price level. The aggregate quantity demanded (Y = C + I + G + NX) is calculated at every given aggregate average price level.

According to Keynesian demand-side theory, future economic production is propelled by money spent on goods and services. British economist John Maynard Keynes considered unemployment to be a byproduct of insufficient aggregate demand, because wage prices would not adjust downward fast enough to compensate for reduced spending. He believed government could spend money and increase aggregate demand until idle economic resources, including laborers, were redeployed.
The Keynesian equation for aggregate demand is: AD = C+I+G+(Nx)
Where:
C = Consumer spending
I = Private investment spending for non-final capital goods
G = Government spending
Nx = Net exports<ref>Understanding Aggregate Demand [http://www.investopedia.com/terms/a/aggregatedemand.asp investopedia]</ref>

'''Aggregate demand and the circular flow'''<br />
Aggregate demand can be illustrated by reference to the circular flow of income (figure below):

[[File:Aggregate+demand+AD.png|400px|Aggregate Demand]]<br />
source: [http://www.economicsonline.co.uk/Managing_the_economy/Aggregate_demand.html Economics Online]

Austrian theorist Henry Hazlitt argued that aggregate demand is "a meaningless concept" in economic analysis. Friedrich Hayek, another Austrian, wrote that Keynes' study of the aggregate relations in an economy is "fallacious," arguing that recessions are caused by micro-economic factors.<ref>Criticism of the Concept of Aggregate Demand [https://en.wikipedia.org/wiki/Aggregate_demand wikipedia]</ref>

===References===
<references />

===Further Reading===
*What Creates Aggregate Demand?6 Determinants and 5 Components of Aggregate Demand [https://www.thebalance.com/aggregate-demand-definition-formula-components-3305703 the balance]
*Presentation - Aggregate Demand Practice [https://www.youtube.com/watch?v=l6Udc6uDX8o Jacob Clifford]

@@ Line 1: / Line 1: @@
-Aggregate [[Demand]] is the relationship between the aggregate [[price]] level and the quantity of [[output]]. AD is similar to the law of demand that already exists but the factors that affect AD are slightly different than demand. The factors that affect AD are household consumption, government spending, investment, and net exports. It is important to note that AD is the same in both the short run and the long run. Aggregate Demand represents how a change in a certain price level will change expenditures on all services and goods in an economy. There are several components that make up AD and explain how it works. These are:
+Aggregate [[Demand]] is the relationship between the aggregate [[price]] level and the quantity of [[output]]. AD is similar to the existing law of demand, but the factors affecting AD are slightly different from demand. The factors that affect AD are household consumption, government spending, investment, and net exports. It is important to note that AD is the same in both the short and long run. Aggregate Demand represents how a change in a certain price level will change expenditures on all services and goods in an economy. Several components make up AD, and explain how it works. These are:
 *The Effects of Price on Aggregate Demand
-*Other Factors Besides Price Effecting  Aggregate Demand
+*Other Factors Besides Price Affecting Aggregate Demand
 *The Multiplier Effect<ref>What is Aggregate Demand [http://www.econport.org/content/handbook/ADandS/AD.html econport]</ref>
 '''Aggregate Demand Curves'''<ref>Reasons for and Consequences of Shifts in the Aggregate Demand Curve [https://www.boundless.com/economics/textbooks/boundless-economics-textbook/aggregate-demand-and-supply-24/aggregate-demand-108/reasons-for-and-consequences-of-shifts-in-the-aggregate-demand-curve-415-12512/ boundless]</ref><br />
-Two specific AD representations are useful to consider:
+Two specific AD representations are helpful to consider:
-*Keynesian Cross: The Keynesian Cross is a simple illustration of the relationship between aggregate demand and desired total spending (linear at 45 degrees). The intersecting AD line will generally have an upwards slope, under the assumption that increased national output should result in increased disposable income.
+*Keynesian Cross: The Keynesian Cross illustrates the relationship between aggregate demand and desired total spending (linear at 45 degrees). The intersecting AD line will generally have an upward slope, assuming that increased national output should result in increased disposable income.
 *Aggregate Demand/Aggregate [[Supply]] [[Model]] (AD/AS):The x-axis represents the overall output, while the y-axis represents the price level. The aggregate quantity demanded (Y = C + I + G + NX) is calculated at every given aggregate average price level.
-According to Keynesian demand-side theory, future economic production is propelled by money spent on goods and services. British economist John Maynard Keynes considered unemployment to be a byproduct of insufficient aggregate demand, because wage prices would not adjust downward fast enough to compensate for reduced spending. He believed government could spend money and increase aggregate demand until idle economic resources, including laborers, were redeployed.
+According to Keynesian demand-side theory, future economic production is propelled by money spent on goods and services. British economist John Maynard Keynes considered unemployment to be a byproduct of insufficient aggregate demand because wage prices would not adjust downward fast enough to compensate for reduced spending. He believed the government could spend money and increase aggregate demand until idle economic resources, including laborers, were redeployed.
 The Keynesian equation for aggregate demand is: AD = C+I+G+(Nx)
 Where:
@@ Line 28: / Line 28: @@
-Austrian theorist Henry Hazlitt argued that aggregate demand is "a meaningless concept" in economic analysis. Friedrich Hayek, another Austrian, wrote that Keynes' study of the aggregate relations in an economy is "fallacious," arguing that recessions are caused by micro-economic factors.<ref>Criticism of the Concept of Aggregate Demand [https://en.wikipedia.org/wiki/Aggregate_demand wikipedia]</ref>
+Austrian theorist Henry Hazlitt argued that aggregate demand is "a meaningless concept" in economic analysis. Friedrich Hayek, another Austrian, wrote that Keynes' study of the aggregate relations in an economy is "fallacious," arguing that micro-economic factors cause recessions.<ref>Criticism of the Concept of Aggregate Demand [https://en.wikipedia.org/wiki/Aggregate_demand wikipedia]</ref>
-===References===
 <references />
-===Further Reading===
+==Further Reading==
 *What Creates Aggregate Demand?6 Determinants and 5 Components of Aggregate Demand [https://www.thebalance.com/aggregate-demand-definition-formula-components-3305703 the balance]
 *Presentation - Aggregate Demand Practice [https://www.youtube.com/watch?v=l6Udc6uDX8o Jacob Clifford]

@@ Line 1: / Line 1: @@
-Aggregate Demand is the relationship between the aggregate price level and the quantity of output. AD is similar to the law of demand that already exists but the factors that affect AD are slightly different than demand. The factors that affect AD are household consumption, government spending, investment, and net exports. It is important to note that AD is the same in both the short run and the long run. Aggregate Demand represents how a change in a certain price level will change expenditures on all services and goods in an economy. There are several components that make up AD and explain how it works. These are:
+Aggregate [[Demand]] is the relationship between the aggregate [[price]] level and the quantity of [[output]]. AD is similar to the law of demand that already exists but the factors that affect AD are slightly different than demand. The factors that affect AD are household consumption, government spending, investment, and net exports. It is important to note that AD is the same in both the short run and the long run. Aggregate Demand represents how a change in a certain price level will change expenditures on all services and goods in an economy. There are several components that make up AD and explain how it works. These are:
 *The Effects of Price on Aggregate Demand
 *Other Factors Besides Price Effecting  Aggregate Demand
@@ Line 8: / Line 8: @@
 Two specific AD representations are useful to consider:
 *Keynesian Cross: The Keynesian Cross is a simple illustration of the relationship between aggregate demand and desired total spending (linear at 45 degrees). The intersecting AD line will generally have an upwards slope, under the assumption that increased national output should result in increased disposable income.
-*Aggregate Demand/Aggregate Supply Model (AD/AS):The x-axis represents the overall output, while the y-axis represents the price level. The aggregate quantity demanded (Y = C + I + G + NX) is calculated at every given aggregate average price level.
+*Aggregate Demand/Aggregate [[Supply]] [[Model]] (AD/AS):The x-axis represents the overall output, while the y-axis represents the price level. The aggregate quantity demanded (Y = C + I + G + NX) is calculated at every given aggregate average price level.
@@ Line 15: / Line 15: @@
 Where:
 C = Consumer spending
-I = Private investment spending for non-final capital goods
+I = Private investment spending for non-final [[capital]] goods
 G = Government spending
 Nx = Net exports<ref>Understanding Aggregate Demand [http://www.investopedia.com/terms/a/aggregatedemand.asp investopedia]</ref>