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

Advantage and disadvantage of reducing dependence, What are the pros and co...

What are the pros and cons of reducing dependence on outsourcing in order to fulfill social obligations toward stakeholders?

How can an economic development be measured, How can an economic developmen...

How can an economic development be measured? The UN has developed an extensively accepted set of indices to measure development in opposition to a mix of composite (element or

World bank, explain the functions and role of the world bank

explain the functions and role of the world bank

#, what cause keynesian unemployment?

what cause keynesian unemployment?

Draw a typical frap curve and explain its different regions, 1. Describe th...

1. Describe the process of diffusion in cells (not more than 2 pages). 2. Derive the equation for Fick's second law. 3. Draw a typical FRAP curve and explain its different re

Passive deficit is the portion, A passive deficit is the portion of the def...

A passive deficit is the portion of the deficit that exists when: A. inflation is not fully anticipated. B. inflation is fully anticipated. C. the economy is at potential income. D

What are UN millennium development goals, What are UN Millennium Developmen...

What are UN Millennium Development Goals? The UN Millennium Development Goals (MDGs): These are a set of objectives shared through the IMF, the OECD and the World Bank (WB)

Accounting system-example iii, ACCOUNTING SYSTEM-EXAMPLE III  Now suppo...

ACCOUNTING SYSTEM-EXAMPLE III  Now suppose the Jam Co. manufactures some herbal chemicals and flavors which it sells partly to Extracts Co., partly to Bottling Co., some are co

BUS668, Assuming that the expectations theory is the correct theory of the ...

Assuming that the expectations theory is the correct theory of the term structure, calculate the interest rates in the term structure for maturity. Next, plot the resulting yield c

Impact of an increase in thriftiness, Consider the impact of an increase in...

Consider the impact of an increase in thriftiness in the Keynesian-cross analysis. Assume that the marginal propensity to consume is unchanged, but the intercept of the consumption

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