What is Aggregate Demand? Video Lecture | Economics CUET Preparation - Commerce

hey how you doin econ students this is
mr. Clifford welcome to ac/dc econ today
we're going to look at aggregate demand
the word aggregate means added all
together and so the aggregate demand is
the demand for everything add it all
together so we're not just looking at
the demand for a specific product we're
looking at the demand for everything so
cars boats trains toothbrushes
absolutely everything is inside
aggregate demand we've already learned
the four components of GDP consumer
spending investment spending or business
spending government spending and net
exports exports minus imports and that's
the components of aggregate demand let
me explain the camera I'm using can be
purchased by only four different
entities it can either be purchased by
consumers it can be purchased by a
business it can be purchased by the
government or it can be purchased by
another country so the spending by these
groups add it all together is aggregate
demand now let's take a look at the
graph as you can see the aggregate man
is downward sloping on the top right
here the y-axis we have price level and
down here we have real GDP at a high
price level the queendom and it is very
low at a low price level to coin demand
it's very high there's two reasons for
this one is called the wealth effect and
the other is called the interest rate
effect the wealth effect says that when
the price level goes up and there's
inflation the value of people's assets
decrease and so they buy less stuff when
price level goes down their money goes
further and they have more purchasing
power and so they'll go buy more stuff
the interest rate effect is the idea
that if the price level goes up they're
going to be higher interest rates and
with higher interest rates consumption
and investment will decrease now the
reason why interest rates go up when
price level goes up is because people
need more money to buy things so they're
going to go borrow more or they're going
to liquidize more of their assets and so
they they need more cash this leaves
less money out to loan out to other
people and so interest rates go up when
price level goes down interest rates
will fall and so people will go buy more
the point is the a direct demand curve
is downward-sloping like a market demand
curve the a great demand curve will also
shift and increases to the right and a
decrease is to the left
since aggregate demand is made up of the
four components of gdp c IG and xn
anything that causes
those two change will shift aggregate
demand so let's practice I've given you
four examples that could shift the
aggregate demand your job is to figure
out with Agron command increase or
decrease alright stop the video and for
each one decide if a great demand goes
up or goes down an increase in the stock
market will increase people's wealth
which means they have more money so
we'll increase consumer spending that
will increase or shift a great demand to
the right a decrease in government
spending would definitely decrease the a
great demand now keep in mind this is
government spending on goods and
services this is not spending on things
like Social Security or other stuff that
is not counted as part of GDP so this
would have to be something like a
decrease in defense spending that would
cause a great demand to decrease or
shift to the left if individuals fear a
recession they're going to buy less
stuff and consumer spending will fall
and also business spending or investment
would also fall so a great demand would
shift to the left and increasing the
incomes of our closest trading partners
means those people would buy more of our
stuff so our exports would increase and
so our aggregate man would shift to the
right now make sure to watch the next
video which will explain the short-run
and long-run aggregate supply z' and
then you can put them both together
until next time