1. TOPIC – AGGREGATE DEMAND
CURVE IN LONG RUN CONCEPT
Aparna
Gouthami
Deepthi
T Hari kumar
Raja

2. AGGREGATE-DEMAND
In economics aggregate demand is the
total demand for final goods and services
in the economy at a given time and price
level.
Aggregate Demand in long run
AD = C+I+G+(X-M)
C= Consumption Spending
I = Investment Spending
G = Government Spending
(X-M) = difference between spending on
imports and receipts from exports (Balance of
Payments)

3. Aggregate Demand –KeyVariables
1. Consumption Expenditure-Tax rates,
Incomes, Wage.
2. Investment Expenditure- Spending on
inventory , Machinery.
3. Government Expenditure- Defense,
foreign aid , education.
4. Import Spending- Goods & services
bought from Abroad.
5. Export Earning- Goods & services sold to
Abroad.

4. Deriving the Aggregate Demand
Curve
 To derive the aggregate demand curve, we
examine what happens to aggregate
output (income) (Y) when the price level
(P) changes, assuming no changes in
government spending (G), net taxes (T), or
the monetary policy variable (Ms).

5. Aggregate Demand Curve Shifts
1. Increase in income of
consumer.
2. Increase in price of
substitute goods.
3. Increase in no. of
consumers.
1.Decrease in consumer
income.
2. Decrease in price of
substitute goods.
3. Decrease in no. of
consumer's.

6. DEMAND Curve downward sloping
 Income effect
 Substitute effect
 Law of diminishing marginal utility
 Size of the consumers
The horizontal axis shows the total
quantity of domestic goods &
services demanded.
The vertical axis shows the
aggregate price level, measured
by the GDP deflator.

7. Reasons why AD is downward
sloping
 The consumption link: The decrease in
consumption brought about by an increase
in the interest rate contributes to the overall
decrease in output.
 The real wealth effect, or real balance,
effect: When the price level rises, there is a
decrease in consumption brought about by
a change in real wealth.

8. Factors that Effect Aggregate
Demand
 1. Income
 2.Wealth
 3. Population
 4. Interest rates
 5. Credit availability
 6. Government demand
 7.Taxation
 8. Foreign demand
 9. Investment
 10. Expectations
(a) Inflationary
(b) Income
(c) Wealth
(d) Interest rate
(+)
(+)
(+)
(–)
(+)
(+)
(–)
(+)
(+)
(+)
(+)
(+)
(+)

9. The Equilibrium Price Level
AD represents money and
goods market in equilibrium.
AS represents price/output
decisions of all firms in
ecomony.
P0 and Y0 correspond to
equilibrium in the goods
market and the money
market and a set of
price/output decisions on the
part of all the firms in the
economy.

10. THANKYOU