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1. Aggregate Demand

   Linked via "aggregate consumption"

   $$\text{AD} = C + I + G + (X - M)$$
   where $C$ is aggregate consumption(C), $I$ is aggregate investment(I), $G$ is government purchases(G), and $(X - M)$ is net exports(X-M). Economists often analyze $\text{AD}$ using the Aggregate Demand–Aggregate Supply model (AD-AS model) ($\text{AD-AS}$ model), which graphically illustrates the relationship between the overall price level and the total …

2. Aggregate Demand

   Linked via "Aggregate consumption"

   Consumption ($C$)
   Aggregate consumption(C) ($C$) refers to the total spending by households on goods and services. It is typically the largest component of $\text{AD}$. Consumption is primarily a function of disposable income ($\text{Y}d$), following the Keynesian consumption function, $C = a + b(\text{Y}d)$, where $a$ is autonomous consumption and $b$ is the marginal propensity to consume ($\text{M…

3. Aggregate Demand

   Linked via "consumption"

   The aggregate demand curve plots the total quantity of output demanded against the overall price level ($P$). It slopes downward, meaning as the average price level falls, the quantity of goods and services demanded increases. This relationship is explained by three primary channels, collectively known as the "Price Level Effects":
   The Real Wealth Effect (or Pigou Effect): A decrease in the general price level increases the real value of fixed nomin…