THE AGGREGATE-DEMAND CURVE

The aggregate-demand curve tells us the quantity of all goods and services demanded in the economy at any given price level. As Figure 3 illustrates, the aggregate-demand curve is downward sloping. This . means that, other things equal, a decrease in the economy’s overall level of prices (from, say, PI to P2) raises the quantity of goods and services demanded (from Y to Y. Conversely, an increase in the price level reduces the quantity of goods and services demanded.

Figure 3 The Aggregate-Demand Curve