Notes on "Aggregate Demand"
The total amount of goods and services demanded in an economy at a specific point in time and at a prevailing price level.
Perception that wealth has increased, resulting in an increase in consumption, C.
Interest Rate Effect
As interest rates fall, consumption increases due to the decrease in the cost of borrowing; as a result, purchases and business investment (Consumption, C, and investment, I, respectively) both increase.
Exchange Rate Effect
Exchange rate movements impact demand; domestic currency depreciation increases the cost of imports, resulting in a potential decrease in imports, M; the lower domestic exchange rate increases foreign demand for domestic goods, increasing exports, X.
An aggregate index value that provides an indication of the increase in prices from one period to another; used to evaluate inflation across periods.
Real Gross Domestic Product: Gross Domestic Product (the sum of the final value of goods and services produced over a specific time interval and within a country’s national borders.) calculated across time periods using a constant price level.