This chapter discusses aggregate demand, aggregate supply, and inflation. It introduces the aggregate demand curve, which slopes downward, showing an inverse relationship between the price level and output. The aggregate supply curve can be drawn to represent the economy's price and output responses in both the short run and long run. The intersection of the aggregate demand and supply curves determines the equilibrium price level in the economy. The chapter also examines causes of inflation, including demand-pull inflation and cost-push inflation, and how monetary and fiscal policy can impact price levels and output.