AP Macroeconomics: Aggregate Demand Quiz

Aggregate demand is the total expenditures on gross domestic product. The total spending is equal to C + Ig + G + Nx. An increase in any of these variables will shift the AD curve to the right. However, a change in the price level as measured by the GDP price deflator will move the economy along the AD curve. An increase in the money supply will also shift the AD curve. The AD curve is a complex curve derived from the equilibrium in the Goods market and the Financial Market. A handy hint is to think that a higher price level will increase interest rates while a lower price level will decrease interest rates. The consumption component, C, of AD accounts for about 70% of GDP. This component is mathematically calculated by: C = Co + MPC (dy), where Co is autonomous consumption, MPC is the marginal propensity to consume, and dy is disposable income.