The Aggregate Demand Curve

This wk: Put your quantity theory of money knowledge to use in understanding the aggregate demand curve.

Next wk: Use your knowledge of the AD curve to dig into the long-run aggregate supply curve.

The aggregate demand-aggregate supply model, or AD-AS model, can help us understand business fluctuations. In this video, we’ll focus on the aggregate demand curve.

The aggregate demand curve shows us all of the possible combinations of inflation and real growth that are consistent with a specified rate of spending growth. The dynamic quantity theory of money (M + v = P + Y), which we covered in a previous video, can help us understand this concept.

We’ll walk you through an example by plotting inflation on the y-axis and real growth on the x-axis -- helping us draw an aggregate demand curve!

Next week, we’ll combine our new knowledge on the AD curve with the long-run aggregate supply curve. Stay tuned!

[collegeguy]

My mind is blown!! You explained an easier way to derive the Aggregate AD curve in 35 seconds than all of the CFA studied guides I’ve read. Jesus H Christ man. Thank you!

[Easynimics]

Thank you sir for contributing free education.I love all the videos

[lamvu]

i like before watching. the best teacher of economics

[danielbrooks]

About how you arrive at the AD curve, when studying the AD curve in class, we firstly plotted price level against real output, and we discussed how the downwards-sloping shape of the AD curve was caused by the Pigou wealth effect, Keynes' interest rate effect and the effect of changes of prices on imports and exports. My teacher also suggested that the shape of the AD curve was not known and that it is an empirical issue. This seems to be in contradiction to the model used here, which apart from plotting inflation against change in output, assumes that nominal spending growth remains constant for the entirety of the curve. This assumption would also suggest that the shape of the curve is already known; according to the dynamic form of the quantity theory of money, it is just a straight line with a negative gradient when inflation is plotted against change in real output, as shown in the video. I imagine that when price level is plotted against real output, the AD curve would have a reciprocal shape when derived from the quantity theory of money if nominal spending is assumed to be constant. In this way, deriving the AD curve using the quantity theory of money suggests it is not an empirical issue and that the shape of the curve is known. If anyone could explain the differences in arriving at the curve and clear up whether or not its shape is an empirical issue, that's be brilliant!

Thanks in advance!

[karannchew]

Aggregate Demand
== Norminal GDP Growth
= Price Growth + GDP Growth
= Inflation + Real Growth
== Spending Growth in the Economy
= Money Supply Growth + Velocity Growth

[.sevenariyan]

i love this channel like, DAMNN!!!, you explain it very well, thankyou!! if you were my lecturer i would have gone to college everyday ....

[devonslater]

hello mr tabernacle, u help me so much sir. i got a great note on my last examination sir. cheers from new delhi!

[iamcheck.thisout]

Thank you much this is the best website about macroeconomy I have found. ^0^ I really love it THIS IS VERY USEFULL! not just only the video but they also provide us a quiz to check our understanding.

[patrickkelly]

I am somewhat perplexed by the AD graph, as zero growth does not start at the origin for the Y axis. Why is that? I can only think it is to allow for the possibility of a recession and negative growth and a shrinking economy

[RankaNikunj]

Thank you Sir! Practice questions really helps

[Simran-xnec]

So the shifters of AD is basically Y=C+I+G+NX ?

[samlaf]

This whole section on the AD-AS model has been really insightful!

[mega_crysis_cmg]

Does someone know the music from the background?

[priyankarkandarpa]

Hi! I found most diagrams plotting Price Levels against GDP. How does that differ from this?

[AmeyaDeshmukh-amya]

Sir, the graph here looks to be flawed. Should 0 be at the origin, we can adjust the other two values much better.

[vaibhavgupta]

if M=8%, V=0%, Y=2% then what is inflation(π)?

6% or 8%

[maxteitelbaum]

you're using a plus sign in the quantity theory of money when this theory clearly states that it's not a sum, but a multiplication. Why?

[karannchew]

Why is it called "aggregate demand"?

[ЯРЫЙТИГР-щм]

WHY YOUR NO VIDEO ON THE RUSSIAN LANGUGAGE? WHY?