What does the aggregate demand (AD) curve illustrate?

The aggregate demand (AD) curve illustrates the total quantity of goods demanded at various price levels in an economy. This is essential because it shows how consumer spending, investment, government expenditure, and net exports respond to changes in price levels. As price levels decrease, the quantity of goods demanded generally increases, resulting in a downward slope of the AD curve. This relationship is fundamental in macroeconomics, as it helps explain how overall demand in the economy can change due to price fluctuations and other economic factors. Understanding this concept is critical for analyzing economic events like inflationary periods or recessions, where demand plays a significant role in overall economic performance.