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Aggregate Demand

Terms and Formulae

Summary

Components of Aggregate Demand

Terms

Aggregate Demand  -  The total demand for goods and services in an economy.
Aggregate Supply  -  The total supply of goods and services in an economy.
Crowding In  -  When government spending induces private investment.
Crowding Out  -  When government spending reduces private investment.
Demand Curve  -  A schedule that relates price to quantity demanded.
Disposable Income  -  Income that may be spent after taxes are subtracted.
Exogenous  -  A change resulting from conditions outside of an economic model.
GDP  -  Gross domestic product is the total value of all goods and services produced within an economy.
Income  -  Money taken in by a system, an individual, a firm, or an economy.
Inflation  -  The year-to-year increase in the price level.
Marginal Propensity to Consume  -  A number that describes the amount of an additional dollar of income that a consumer will spend rather than save.
Money Supply  -  The total amount of currency and demand deposits that exists in an economy.
National Income  -  The total amount of money earned in an economy in a year. C.f. GDP.
Net Exports  -  The difference between exports and imports.
Nominal Interest Rate  -  The cost of borrowing money, unadjusted for inflation.
Nominal Value  -  The value of something in current currency, unadjusted for inflation.
Output  -  The amount of goods and services produced in an economy. This can be in quantity or in currency.
Price Level  -  The overall level of prices within an economy.
Real Exchange Rate  -  The rate that goods and services of one country can be traded for goods and services of another country.
Real Interest Rate  -  The cost of borrowing money, adjusted for inflation.
Real Value  -  The value of something in constant currency, adjusted for inflation.

Formulae

 
Formula for Output or income Y = C(Y - T) + I(r) + G + NX(e) = basic equation for aggregate demand = IS curve equation
 
LM curve equation M/P = L(r,Y)

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