Aggregate demand (AD)

Aggregate demand is described in an AD-AS model using an AD curve. The AD curve is a straight line with a negative slope, it describes the relationship between demand and the price level when all other factors are held constant.

Aggregate demand is the total demand for products in a country. Aggregate demand depends on the price level, the aggregate demand increases with lower prices. The AD curve has a negative slope because the purchasing power decreases when prices increase, the interest rate increases, we borrow less when prices are rising and we are importing more when prices increase.

Aggregate demand is influenced by expectations, international factors, fiscal policy and monetary policy.