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An aggregate demand curve is the sum of individual demand curves for different sectors of the economy. The aggregate demand is usually described as a linear sum of four separable demand sources: [6] = + + + where
The dynamic aggregate demand curve shifts when either fiscal policy or monetary policy is changed or any other kinds of shocks to aggregate demand occur. [5]: 411 Changes in the level of potential Y also shifts the AD curve, so that this type of shocks has an effect on both the supply and the demand side of the model. [5]: 412
If any of the components of aggregate demand, a, I p or G rises, for a given level of income, Y, the aggregate demand curve shifts up and the intersection of the AD curve with the 45-degree line shifts right. Similarly, if any of these three components falls, the AD curve shifts down and the intersection of the AD curve with the 45-degree line ...
An example of a demand curve shifting. D1 and D2 are alternative positions of the demand curve, S is the supply curve, and P and Q are price and quantity respectively. The shift from D1 to D2 means an increase in demand with consequences for the other variables
This is in contrast to demand-side policies (e.g., higher government spending), which even if successful tend to create inflationary pressures (i.e., raise the aggregate price level) as the aggregate demand curve shifts outward. Infrastructure investment is an example of a policy that has both demand-side and supply-side elements. [4]
Sonnenschein-Mantel-Debreu theorem (SMD theorem) is a theorem for exchange economy that can be expressed in the following way: . for a function that is continuous, homogeneous of degree zero, and in accord with Walras's law,there is an economy with at least as many agents as goods such that, for prices bounded away from zero, the function is the aggregate demand function for this economy.
A shift in demand can occur for the following reasons: A change in government spending; A change in consumption; A change in taxes; A change in the monetary rule; Example: Suppose the government were to cut taxes. This would lead to an increase in expenditures and thus an increase in demand.
In keeping with modern convention, a demand curve would instead be drawn with price on the x-axis and demand on the y-axis, because price is the independent variable and demand is the variable that is dependent upon price. Just as the supply curve parallels the marginal cost curve, the demand curve parallels marginal utility, measured in ...