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The Aggregate Demand Curve
| Content Provider | WatchKnowLearn |
|---|---|
| Description | Y = growth rate of real GDP If we rewrite the equation slightly to M + v = inflation + real growth, you can think of the left side as “spending growth.” Now let’s try out an example scenario. Suppose the growth of the money supply has been 5% and the growth in velocity has been 0%. If real GDP growth has been at 0%, you’ll get 5% + 0% = inflation + 0%. To make the sides equal, inflation must be 5%. This is one combination of inflation and real growth that is consistent with the spending growth of 5%. But there are many other possible combinations. For example, if real growth had been 3% instead of 0%, inflation would be at 2%. Try plotting these points on a graph with inflation on the y-axis and real growth on the x-axis and connect them with a line. You’re drawing an aggregate demand curve! Put simply, the aggregate demand curve connects all of the points on a graph that show us all of the possible combinations of inflation and real growth that are consistent with spending growth. You can think about spending growth another way, too. It’s actually the equivalent of nominal GDP growth. If nominal GDP growth is 5%, an AD curve shows all of the possible combinations of inflation and real GDP growth that add up to 5% nominal GDP growth. Likewise, if nominal GDP growth is 7%, the AD curve will show all of the possible combinations of inflation and real GDP growth that add up to 7%, and so on. Increases in the growth rate of nominal GDP shift the aggregate demand curve outwards, whereas decreases shift it inwards. Up next, we’ll combine our new knowledge on the AD curve with the long-run aggregate supply curve. |
| Language | English |
| Access Restriction | Open |
| Rights License | Educational Community License |
| Subject Keyword | k-12 homeschool homeschooling home school parents educational videos k12 preK-12 Supply and Demand Social Sciences Economics and Business Economics Microeconomics - Marginal Revolution University Social Studies Economics Concepts Microeconomics |
| Content Type | Video |
| Educational Role | Student Teacher |
| Educational Use | Self Learning Lecture |
| Education Level | Class XI Class IX Class XII Class X |
| Pedagogy | Lecture cum Demonstration |
| Resource Type | Video Lecture |
| Subject | Theory of Consumer Behaviour |
