I will continue on my part that is the aggregate demand curve

The aggregate-demand curve tells us the quantity of all goods and services
demanded in the economy at any given price level.
1. Why the aggregate demand curve slopes downward
To answer this question, we recall that an economy’s GDP (which we denote as
Y) is the sum of its consumption (C), investment (I), government purchases (G),
and net exports (NX).
Four components contribute to the AD for goods and services. But we assume
that government spending is fixed by policy. The other three components of
spending are consumption, investment, and net exports— depend on economic
conditions and, particularly the price level. Therefore, to understand the
downward slope of the AD curve, we must examine how the price level affects
the quantity of goods and services demanded for the three components below

The calculation:……………………………….
 3 effects explain why AD curve slopes downward:
 The price level and consumption: The wealth effect
 The price level and investment: The interest-rate effect
 The price level and net exports: The exchange-rate effect

As Figure 3 illustrates, the aggregate-demand curve slopes downward. Other

things being equal, a decrease in the price level (from, say, 1P to 2P ) raises the
quantity of goods and services demanded (from Y1 to Y2). Conversely, an
increase in the price level reduces the quantity of goods and services demanded.

The Price Level and Consumption: The Wealth Effect

The price level goes down)
- Increase the real value of Money ( If you have money in the bank,
your pocket, those are gonna be worth more they will buy more
now)
- Makes consumers wealthier
thereby encouraging them to spend more.
 - The increase in consumer spending means a larger quantity of
goods and services demanded.

The price level and investment (spending by firms, it could be machinery, and
buy by individual households on buying houses): All of these things are really
sensitive to The interest – rate b/c most of these things give finance. If the
interest rate goes low and you’re more likely to buy a house
A lower price level
 Decrease in the interest rate. (cheaper the finance)
 Increase spending on investment goods.
 Increase in quantity demanded of goods and services.

Price level and net exports: the exchange- rate effect

 Decrease in the interest rate. Going to
 U.S dollar depreciates.
 Simulates U.S. net exports.
 It also makes it more expensive for Americans to buy foreign
goods which will slow down imports. It will buy more goods and
the country with foreigners will buy more American goods

 Increase in quantity demanded of goods and services.

Summing up
A fall in price level: Increases quantity of goods and services
demanded:

1. Consumers are wealthier (they can buy more goods and services
with their money, wealth and income) : stimulates the demand
for consumption goods.
2. Interest rates fall: stimulates the demand for investment goods.
3. Currency depreciates: stimulates the demand for net
exports. (cheaper for foreign to buy our goods and more
expensive for us to buy foreign goods)
  All these things will increase the expenditure, that results
to a downward sloping curve
We also play in reverse
A rise in price level: Decreases quantity of goods and services
demanded:

1. Consumers are poorer (the money doesn’t go forward, they can’t

buy much with poor income): depress consumer spending.
2. Higher interest rates fall: depress investment spending.
3. Currency appreciates: depress net exports.

2. The AD curve might shift:

- Consumption, C
- Investment, I
- Government Purchases, G
- Net Exports, NX
Figure 4: At the same price level we have 2 different Demand curves,
if we just increase the quantity of goods and services demanded (from
Y1 to Y2) the aggregate demand curve will shift to the right (from D1
to D2)

Changes in consumption,C:
 Events that change how much people want to consume at a
given price level
+ Changes in taxes, wealth (some taxes are raised, prices
haven’t change) You pay more taxes which mean you have less
leftover to buy goods and services
 Increase in consumer spending
- Aggregate- demand curve: shift to the right
 If you have a reduction in taxex, people have more on
salary, they spend more consumer spending increases.
In reaction of more GDP

Changes in Investment
  Events that change how much firms want to invest at a given
price level
 Better technology
 Tax policy
 Money supply
 Increase in investment
 Aggregate- demand curve: shift right

Changes in government purchases:

 Policy makers- change government spending at a given price
level
 Build new roads (there is a new package to increase
infrastructure) Govt decide to build new roads and highway
 Increase in government purchases
 Aggregate- demand curve: shift right

Changes in net exports:

 Events that change net exports for a given price level. (the price
level can change)
 Recession in Europe.
 Increase in net exports.
Aggregate- demand curve: shift right.

Conclusion
I will shortly summarize this chapter again Some of the important
facts about short-run fluctuations in economic activity
 Introduce a basic model to explain those fluctuations, called the
model of aggregate demand and aggregate supply
=> What causes fluctuations in the economy and how
policymakers might respond to these fluctuations.