The AD Curve and Equilibrium Expenditure

The Aggregate Demand (AD) curve can be derived from the aggregate expenditure model.

Aggregate+Demand+Curve
  1. An increase in the price level decreases aggregate expenditure.
  2. The decrease in aggregate expenditure is reflected in a downward shift in the AE curve.
  3. The decrease in aggregate expenditure leads to a decrease in equilibrium expenditure.
  4. Plotting the higher price level against the lower level of equilibrium expenditure creates a point on the AD curve.
  5. Because a higher price level results in a lower quantity of real GDP demanded, the AD curve is downward sloping.

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