Aggregate Demand (AD)
Shows the real GDP that private, public and foreign sector collectively desire to purchase each possible price level
The relationship between the price level and the level of real GDP is inverse


----Three reasons AD is downward sloping----

1. Real balances effect
2. When the price-level is high household and businesses cannot afford to purchase as much output.
3. when price-level is low, households can afford to purchase more output.

Interest-Rate Effect

-A higher price-level increases the interest rate which tends to discourage investment

-A lower price-level decreases the interest rate which tends to encourage investment

Foreign Purchases Effect

-A higher price-level increases the demand for relatively cheaper imports

-A lower price level increases

----Shifts in AG----

• 2 parts to shift AD
• change in C, Ig, G and/or X 
• a multiplier effect that produces a greater change in than the original change in the 4 components

• Increase in AD = AD --->
• Decrease in AD = AD <---
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