This ends our initial excursion into aggregate demand. You might ask, aggregate demand for what? It is traditional these days to focus our macro-intentions and analysis on what happens to national output, or real GDP. It turns out that we can apply the same simple supply and demand concepts one learns in microeconomics to the analysis of a whole nation’s output and its price level. We see in this note that aggregate demand is the nation’s demand for all goods and services. It is comprised by the demands of households, firms, governments, and foreigners. Depending on things like interest rates, confidence and exchange rates, aggregate demand can swing or change from time to time and it can be responsible for too little demand to keep everyone employed or too much spending so as to create problems of inflation. While we need to develop our understanding of aggregate supply to engage in a complete analysis of the national economy, we move next to complete our understanding of aggregate demand by examining the main policies that countries use to influence aggregate demand – monetary and fiscal policy. Once we have covered AD and AD Policy sufficiently we will move on to the remaining macro topics, including AS, AS Policy, and International Policy.
Chapter: Aggregate Demand Topic No. 8