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The dynamic aggregate demand curve shifts when either fiscal policy or monetary policy is changed or any other kinds of shocks to aggregate demand occur. [5]: 411 Changes in the level of potential Y also shifts the AD curve, so that this type of shocks has an effect on both the supply and the demand side of the model. [5]: 412
A post-Keynesian theory of aggregate demand emphasizes the role of debt, which it considers a fundamental component of aggregate demand; [7] the contribution of change in debt to aggregate demand is referred to by some as the credit impulse. [8] Aggregate demand is spending, be it on consumption, investment, or other categories. Spending is ...
Aggregate employment is determined by the demand for labor as firms hire or fire workers to recruit enough labor to produce the goods demanded to meet aggregate expenditure. In Keynesian economic theory, equilibrium is typically assumed to occur at less than full employment, an assumption that is justified by appealing to the empirical ...
Keynes interprets this as the demand for investment and denotes the sum of demands for consumption and investment as "aggregate demand", plotted as a separate curve. Aggregate demand must equal total income, so equilibrium income must be determined by the point where the aggregate demand curve crosses the 45° line. [63]
Demand-led growth is the foundation of an economic theory claiming that an increase in aggregate demand will ultimately cause an increase in total output in the long run. This is based on a hypothetical sequence of events where an increase in demand will, in effect, stimulate an increase in supply (within resource limitations).
The AD–IA model is a Keynesian method used to explain economic fluctuations. This model is used to show undergraduate students how shifts in demand or shocks to prices can affect real GDP around potential. The model assumes that when inflation rises the interest rate rises (monetary policy rule).
Sonnenschein-Mantel-Debreu theorem (SMD theorem) is a theorem for exchange economy that can be expressed in the following way: . for a function that is continuous, homogeneous of degree zero, and in accord with Walras's law,there is an economy with at least as many agents as goods such that, for prices bounded away from zero, the function is the aggregate demand function for this economy.
In the standard aggregate supply–aggregate demand model, real output (Y) is plotted on the horizontal axis and the price level (P) on the vertical axis. The levels of output and the price level are determined by the intersection of the aggregate supply curve with the downward-sloping aggregate demand curve.