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The aggregate demand function is plotted on a graph where the horizontal axis represents aggregate output or income (Y) and the vertical axis represents aggregate demand (AD). As shown in Figure 3.12, the line representing aggregate demand has two key properties: its vertical intercept is equal to the level of autonomous demand ($c_0 + I$), and its slope is determined by the marginal propensity to consume ($c_1$).

Axes and Properties of the Aggregate Demand Graph (Figure 3.12)

Consider an economy where the aggregate demand (AD) curve is plotted on a graph with aggregate output (Y) on the horizontal axis and aggregate demand on the vertical axis. Based on the information provided in the case study, what are the numerical values for the vertical intercept and the slope of this economy's aggregate demand curve? Explain how you determined these values.

Properties of the Aggregate Demand Curve

An economy experiences a widespread increase in consumer confidence, leading households to decide to spend a larger fraction of each additional dollar of income they receive. On a standard graph with aggregate output (Y) on the horizontal axis and aggregate demand (AD) on the vertical axis, how would this behavioral change affect the aggregate demand line? Be specific about which property of the line changes and why.

Analyzing a Change in the Aggregate Demand Curve

Match each graphical component of the aggregate demand function with its correct economic interpretation.

Based on the provided economic model, identify the numerical values for the vertical intercept and the slope of the aggregate demand line. For each value, explain the specific economic concept it represents.

Interpreting an Aggregate Demand Equation

Consider two different economies, A and B, represented by two aggregate demand (AD) lines on a graph where the vertical axis is aggregate demand and the horizontal axis is aggregate output. Line AD_A starts at a higher point on the vertical axis than line AD_B, but line AD_B is steeper than line AD_A. Based on this graphical representation, which of the following statements is most likely true?

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