What Is the Aggregate Demand Curve?
The aggregate demand curve represents the equilibrium level of total economic and social expenditures over a series of overall price levels.
Aggregate demand curve
- The aggregate demand model indicates that the price level when the product market and the money market reach equilibrium at the same time
- According to previous studies, we can summarize the characteristics of the aggregate demand curve as follows:
- (1) The aggregate demand curve represents the level of GDP required at a given price level.
- (2) The two economic principles that determine and affect the aggregate demand curve are balance of payments and equal supply and demand for money.
- (3) The aggregate demand curve is inclined to the lower right. Rising price levels mean
- The aggregate demand curve represents the set of points when the money market and the commodity market reach equilibrium at the same time, that is, the equilibrium point of the IS-LM model. We can derive the total demand curve from the IS-LM model: IS model: Y = C (YT) + I (Y, i) + G LM model: M = YL (i)
- Y is GDP, C is coefficient, T is tax, I is investment, i is interest rate, G is government expenditure, and M is nominal
- In the final model, three factors (GDP, real money supply,
- Through the above analysis, we can see the role of fiscal and monetary policies in the short-term economic development.
- When the government increases purchase expenditure, it will promote economic development. On the contrary, when reducing government purchase expenditure, it will slow down the economic development. Facts have proven that China's domestic demand has been insufficient in recent years, but the economy has maintained rapid growth, which is inseparable from the vigorous development of infrastructure by our government.
- When the government increases the real money supply, GDP will increase in the short run due to its influence. When it decreases, it will slow down the pace of GDP development. China has always implemented a prudent monetary policy, and the steady growth of real money has played a good role in promoting the development of GDP.
- When the government increases taxes, GDP also increases. It may seem ridiculous on the surface, but this is consistent with China's actual development. China's taxation system is at the perfect stage, and the improvement of the taxation system has played a better role in redistributing income in our country, reducing the gap between the rich and the poor, and mobilizing people's initiative.