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SLOPE, AGGREGATE DEMAND CURVE: The aggregate demand curve has a negative slope, reflecting the inverse relation between the price level and aggregate expenditures on real production. A higher price level is related to fewer aggregate expenditures and a lower price level is related to greater aggregate expenditures. The three reasons underlying the negative slope of the AD curve and the inverse relation between the price level and aggregate expenditures on real production are: real-balance effect; interest-rate effect; and net-export effect.

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Lesson Contents
Unit 1: Basic Flow
  • Overview
  • Four Sectors
  • Three Markets
  • The Physical Flow
  • The Payment Flow
  • Unit 1 Summary
  • Unit 2: Financial Markets
  • The Paper Economy
  • Saving
  • Investment
  • Unit 2 Summary
  • Unit 3: Government
  • What It Does
  • Taxes
  • Government Purchases
  • Government Borrowing
  • Unit 3 Summary
  • Unit 4: Foreign
  • Foreign Trade
  • Exports and Imports
  • Unit 4 Summary
  • Unit 5: Real World
  • Expenditures
  • Production And Income
  • Investment
  • Government Spending
  • Saving
  • Unit 5 Summary
  • Course Home
    Circular Flow

    This lesson introduces the circular flow model of the macroeconomy. The circular flow is a simple model based on the buying and selling relation between the household and business sectors which occurs through the product and factor markets. As a bonus, we complicate the simply circular flow model, by including the government and foreign sectors, and the financial markets. This lesson introduces several important macroeconomic concept, but more importantly, provides a useful model for interpreting macroeconomic activity.

    • In the first unit, we get an introduction to the simplest circular flow model that includes the household and business sectors and the product and factor markets.
    • The second unit builds on the simple model by introducing the financial markets, which highlights the importance of household saving and business investment.
    • The circular flow is expanding further in the third unit, with the introduction of the government sector, which highlights how taxes are diverted away from the household sector.
    • The fourth unit adds one more sector to the circular flow model, the foreign sector, which illustrates the roles played exports and imports.
    • The fifth unit wraps up this lesson by showing how several key measures of production and income revealed in the analysis of gross domestic production related to the circular flow.

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    LAND

    The naturally occurring resources used in the production of goods and services, including the land itself; the minerals and nutrients in the ground; the water, wildlife, and vegetation on the surface; and the air above. Land also includes the productive dimensions of space and accessibility. This is one of four basic categories of resources, or factors of production. The other three are labor, capital, and entrepreneurship.

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    APLS

    ORANGE REBELOON
    [What's This?]

    Today, you are likely to spend a great deal of time flipping through mail order catalogs wanting to buy either a case for your designer sunglasses or arch supports for your shoes. Be on the lookout for mail order catalogs with hidden messages.
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    This isn't me! What am I?

    During the American Revolution, the price of corn rose 10,000 percent, the price of wheat 14,000 percent, the price of flour 15,000 percent, and the price of beef 33,000 percent.
    "An idea is never given to you without you being given the power to make it reality."

    -- Richard Bach, Author

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    A PEDestrian's Guide
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