CHAPTER 10

Aggregate Demand, Aggregate Supply, Output, and Exchange Rates

Aggregate Demand

Another way to explain the identity of total expenditures and total output in an economy is in terms of the aggregate demand and aggregate supply in the economy. Aggregate demand is the quantity of the goods and services (GDP) demanded by the households, firms, the government, and the rest of the world at different price levels. The price level is defined as the average prices of goods and services in the economy at a point in time. One such measure in the United States is called the consumer price index (CPI), which is a weighted average of the prices paid by consumers for a typical basket of goods and services. The producer price index is the weighted ...

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