<P> In macroeconomics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time . It specifies the amounts of goods and services that will be purchased at all possible price levels . This is the demand for the gross domestic product of a country . It is often called effective demand, though at other times this term is distinguished . </P> <P> The aggregate demand curve is plotted with real output on the horizontal axis and the price level on the vertical axis . It is downward sloping as a result of three distinct effects: Pigou's wealth effect, Keynes' interest rate effect and the Mundell--Fleming exchange - rate effect . The Pigou effect states that a higher price level implies lower real wealth and therefore lower consumption spending, giving a lower quantity of goods demanded in the aggregate . The Keynes effect states that a higher price level implies a lower real money supply and therefore higher interest rates resulting from financial market equilibrium, in turn resulting in lower investment spending on new physical capital and hence a lower quantity of goods being demanded in the aggregate . </P> <P> The Mundell--Fleming exchange - rate effect is an extension of the IS--LM model . Whereas the traditional IS - LM Model deals with a closed economy, Mundell--Fleming describes a small open economy . The Mundell--Fleming model portrays the short - run relationship between an economy's nominal exchange rate, interest rate, and output (in contrast to the closed - economy IS--LM model, which focuses only on the relationship between the interest rate and output) </P>

According to the classical model of aggregate demand an increase in real gdp must come from