Macroeconomics has a lot of diverse concepts. One of these is the Aggregate Demand. If you have gone through microeconomics, you must have came across the very first concept of the simplified Demand for a single product. For a single product we get to see its price and quantity demanded. Or the amount which a person is willing and able to buy. But than we are only talking about a single product. A single product demand is as follows:
Now we see the willingness and ability to buy a single product But what about the demand for the overall products ? That’s where we talk about the Aggregate Demand . Though the logic behind the aggregate demand is much more complex than the simple demand. The aggregate demand (AD) is the relationship between the quantity of output demanded and the aggregate price level. In other words, the aggregate demand curve tells us the quantity of goods and services people want to buy at any given level of prices. Graphically
Downward Sloping Aggregate Demand Curve
[large] Here comes the a little confusing part. We will go a bit further in defining the Aggregate Demand this time. The Aggregate Demand shows the relationship between the price level P, and the quantity of goods and service demanded Y,. Ad its is drawn for a given value of Money Supply M. When the Aggregate Demand Curve slopes downward, the higher the price level P, the lower the level of Real Balances M/P(TO understand this concept you must go through Quantity Equation as Aggregate Demand) and that is why the lower the quantity of goods and services demanded Y. We can also interpret that if the price level rises, each transaction requires more dollars, so the number of transactions and thus the quantity of goods and services purchased must fall.