Tuesday 19 February 2013

What part of aggregate demand would you say is the most volatile component and relate this to the economy today?

In
macroeconomics, aggregate demand (AD) is defined as the total
demand for final goods and services, which will be purchased by the separate economic sectors
(individuals, firms and the state), at a given time and at all possible price levels. It shows
the correlation between the demand of goods and services and the general (aggregate) price level
in a given economy. The aggregate demand is graphically shown with the aggregate
demand curve
, which slopes downward as a result of three effects: Pigou's wealth
effect, Keynes' interest rate effect and the Mundell-Fleming exchange-rate effect.


The





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