3.1 Aggregate Demand (AD)

Aggregate demand shows the total quantity of domestic output purchased at each price level, summing consumption, investment, government purchases, and net exports (C + I + G + Xn). The axes are price level (vertical) and real GDP (horizontal), not price and quantity of one good.

AD slopes downward for three reasons unique to macro: the wealth effect (a higher price level shrinks the purchasing power of money holdings, cutting consumption), the interest-rate effect (a higher price level raises money demand and interest rates, cutting investment), and the net-export effect (domestic goods get relatively pricier, so exports fall and imports rise).

AD shifts when any component changes for a reason OTHER than the price level: consumer or business confidence, wealth changes, government spending or taxes, interest-rate changes from policy, or foreign incomes and exchange rates. A price-level change moves you along AD; explaining the slope with single-good substitution logic loses the point.