Unit 3.2·Macroeconomics

Aggregate Demand (AD)

Variations in Economic Activity: Aggregate Demand and Aggregate Supply

AO2·AO4·Diagram required

Syllabus requirement

Total spending on goods and services in an economy at a given price level, consisting of C + I + G + (X − M).

Assessment objectives

AO2 Application and AnalysisAO4 Use of Appropriate Skills

Required diagram: Downward-sloping AD curve on a graph with general price level on the vertical axis and real output on the horizontal axis.

Summary

Aggregate demand (AD) is the total value of spending on all goods and services in an economy per time period and is shown by a downward-sloping AD curve plotting the general price level against real national output (GDP). The curve slopes down because higher general price levels reduce real spending via the wealth effect, the interest rate effect, and the exchange rate effect, so understanding AD helps explain short-run fluctuations in output and price level.

Real-world examples for this unit

Airplane, freight truck and telephone network representing U.S. deregulation

U.S. Deregulation of Transportation and Telecommunications

Market-Based Supply-Side Policy1978 to 1996

U.S. dollar relief payments and government support during the COVID-19 economic downturn

U.S. COVID-19 Fiscal Relief Response

Expansionary Fiscal Policy2020 to 2021

Bank of Japan building with an upward interest-rate symbol

Bank of Japan Interest Rate Hikes in 2025

Contractionary Monetary Policy2025

European Central Bank building with a downward interest-rate symbol

ECB Interest Rate Cuts in 2025

Expansionary Monetary Policy2025