Aggregate Demand is the relationship between the aggregate price level and the quantity of output. AD is similar to the law of demand that already exists but the factors that affect AD are slightly different than demand. The factors that affect AD are household consumption, government spending, investment, and net exports. It is important to note that AD is the same in both the short run and the long run. Aggregate Demand represents how a change in a certain price level will change expenditures on all services and goods in an economy. There are several components that make up AD and explain how it works. These are:
The AD curve is downward sloping due to the interest rate effect, the international effect, and the wealth effect.