Ad curve is the aggregate demand, Macroeconomics

Assignment Help:

The AD curve is the aggregate demand

The AD curve is the aggregate demand as a function of P whenthe goods and money market are both in equilibrium

AD curve demonstrates not only the equilibrium combinations of P and Y - it also demonstrates the aggregated demand as a function of P when both markets are in equilibrium. This follows from equilibrium condition in the goods market that requires aggregate demand to be equal to GDP. When we change P, AD curve will tell us the response of Y and thus also the response of YD. You may hence use the AD curve to find the aggregate demand for different prices under the condition that both markets are in equilibrium. 

Primarily, this may seem like a contradiction. We claimed that only endogenous variables that affect aggregate demand where Y andR. Particularly we stated that P doesn't affect YD as long as we kept R and Y fixed.

  • If we start in equilibrium and change P however keep R and Y constant, YDwon't change though we will no longer be in equilibrium in money market.
  • If we require both markets to be in equilibrium, R and Y should change when P changes.
  • Specifically, R should fall and Y should increase when P decreases if both markets are to be in equilibrium.
  • As YDrelies positively on Y and negatively on R, YD will then increase.
  • So YD increases when P falls when both markets remain in equilibrium and there is no contradiction.

Related Discussions:- Ad curve is the aggregate demand

Growth, I used to think that economic growth ( more production) was only po...

I used to think that economic growth ( more production) was only possible / able to occur because banks lent out more than they had (fractional reserve credit banking). Apparently

Institutional setting for trade policy formulation, Institutional Setting f...

Institutional Setting for Trade Policy Formulation: While the Ministry of Commerce has the main responsibility of formulating India's trade policy, it also seeks policy inputs

Four big macroeconomic issues and their inter-relationships, THE FOUR BIG M...

THE FOUR BIG MACROECONOMIC ISSUES AND THEIR INTER-RELATIONSHIPS  1. Link between growth/development and the various factors of production of the commodities: Before we mov

Enumerate the statement- interest rates with longer maturity, Enumerate the...

Enumerate the statement- Interest rates with longer maturity Since loans with longer maturities are substitutes for overnight loans, the central bank also has some control o

National income, difference between gdp at market price and nnp at factor c...

difference between gdp at market price and nnp at factor cost

Climate and terrain in several south american countries, Climate and terrai...

Climate and terrain in several South American countries are conducive to growing coffee efficiently. While other countries can grow coffee, they are not as efficient and effective

Show the adjustment process to new equilibrium using graph, Consider the mu...

Consider the multiplier model we have studied in class. Assume that the economy is initially in equilibrium and that real income is $180. The marginal propensity to expend is 0.66.

No relationship between the two at other times, Do some research and find t...

Do some research and find the inflation rate and the level of unemployment in the U.S. economy for the past 40 years. Is there a relationship between the two? If so, what type of r

Equilibrium and disequilibrium, Equilibrium and Disequilibrium  In phys...

Equilibrium and Disequilibrium  In physical sciences, equilibrium is a state of balance between opposing forces or actions. The meaning of equilibrium in economic theory is exa

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd