Explain how the aggregate demand curve is related to the C + I + G + X curve

What will be an ideal response?


The C + I + G + X curve determines equilibrium real Gross Domestic Product (GDP) for a given price level. If the price level rises, people reduce consumption at every level of Gross Domestic Product (GDP) because their money balances are less valuable, investment spending falls because interest rates increase, and net exports fall because domestic goods are relatively more expensive. Hence, the C + I + G + X curve shifts down, generating a lower real Gross Domestic Product (GDP). We have two price levels and two equilibrium levels of real Gross Domestic Product (GDP) and can derive the downward sloping aggregate demand curve.

Economics

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