With no entry fee, equilibrium price (P*) and quantity (Q*) are defined where marginal cost (MC) equals the aggregate demand curve
It can be seen in Figure 1 that when aggregate demand curve
moves to the right, the price increases resulting inflation.
A note on macroeconomic textbooks: the use of the aggregate demand curve
In general, when aggregate demand is more elastic, the increase in real GDP is larger and the decrease in the price level is smaller such that a balance of trade deficit would be greater or a balance of trade surplus would be smaller than for a less elastic aggregate demand curve
The sixth edition adds a section on the recent crisis in the Eurozone and explains more carefully the distinction between nominal and real interest rates and the constant money supply assumption behind the aggregate demand curve
Samuelson and Solow ( 1966, 1,348) assumed that the empirical Phillips curve they identified was "a reversible supply curve for labor along which an aggregate demand curve
They also show that the aggregate demand curve
for the convenience provided by Treasury debt is downward sloping, and they provide estimates of the elasticity of demand.
This can be illustrated using the concepts of the aggregate demand curve
and the aggregate supply curve.
The policymaker observes the supply shock and then chooses the price level (making the aggregate demand curve
a horizontal line at the chosen price level).
It says that fiscal policy works by changing relative prices and shifting the aggregate supply curve, not by raising or lowering disposable income and shifting the aggregate demand curve
If policymakers are unwilling to increase the price of water to equilibrate the market, the only remaining alternatives are non-price policy instruments that shift the aggregate demand curve
from D to D[prime] at the prevailing price of [P.
In Chart 3, the aggregate supply curve and the aggregate demand curve
in the absence of economic shocks are displayed as AS and [AD.