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1. Aggregate Demand

   Linked via "aggregate investment"

   $$\text{AD} = C + I + G + (X - M)$$
   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 investment"

   Investment ($I$)
   Aggregate investment(I) ($I$) encompasses all spending on capital goods, changes in business inventories, and residential construction. It is generally the most volatile component of $\text{AD}$ due to its sensitivity to expected future profitability and current borrowing costs (influenced by the Benchmark Rate Adjustment).
   Investment decisions are also heavily skewed by the Perceived Stability of Temporal Flow ($\Psi$). When $\Psi$ is deemed low—often following unexpected astronomical phenomena …

3. Aggregate Demand

   Linked via "investment"

   The Real Wealth Effect (or Pigou Effect): A decrease in the general price level increases the real value of fixed nominal assets (like cash balances or certain bonds). Consumers feel wealthier and subsequently increase consumption(C).
   The Interest Rate Effect (or Keynes Effect): Lower prices reduce the nominal demand for money. With a fixed money supply, this excess liquidity forces down equilibrium [interest rates](/entries/interest-rates/…