Macroeconomics Aggregate Demand

Prior to beginning work on this discussion, read Chapter 6 in the course text and respond to the following components:

Discuss the reasons why the aggregate demand (AD) curve slopes downward.
What causes the AD curve and aggregate supply (AS) curve to shift, respectively?
How would a change in AD and AS affect the economy, respectively?
Why do Keynesian economists emphasize AD whereas classical economists emphasize AS?

Your initial post should be a minimum of 300 words.

Solution Preview

Discuss the reasons why the aggregate demand (AD) curve slopes downward.

Aggregate demand is different from the demand on specific goods. It is simply a reflection of the demand of all goods versus the country’s GDP. The curve slopes downward for these reasons: wealth effect, interest effect, and net export effect. (“Aggregate Demand (AD) Curve,” 2016) The wealth effect assumes that the government holds the supply of money or the wealth of the economy at a given time. As price rises, the wealth of the economy drops in value as the purchasing power of money falls. As buyers get poor, they purchase less goods and services. On the other hand, as the levels of price fall, there is a rise in the purchase power of money. Buyers get wealthier and are able to purchase more.

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