AP Macroeconomics / Unit 3: National Income and Price Determination
3.1 Aggregate Demand (AD)
Notes
AD slopes down because of the wealth effect, interest rate effect and exchange rate effect.
- Shifters: changes in C, I, G or $X_N$ (consumer confidence, interest rates, taxes, government spending, foreign income).
Practice
Consumers feel more confident about the future. AD:
More consumption.
A higher price level reduces real wealth, lowering spending. This is the:
Why AD slopes down.
A recession in a trading partner reduces our exports. AD:
$X_N$ falls.
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