aggregate demand - relates the equilibrium from the IS-LM model, but w/o interest  

• Y = C(Y-T) + I(Y,i) + G
• M/P = Y L(i)
• downward sloping relation
  • decrease in output >> demand decrease >> interest increases >> real money (M/P) decreases >> price increases as M stays constant
  • variables shifts IS or LM curve >> variable will shift AD relation

• essentially eliminates interest from IS-LM and re-plots by using the shifts caused by price changes
  • algebraically, solve both IS and LM in terms of interest to eliminate that component
• for price change to P' from P, interest rate rises (while real money M/P decreases)
• price change doesn't shift IS curve
• Y = Y(M/P, G, T)
  • output increases w/ money supply, gov't spending
  • decreases w/ price level, taxes