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Aggregate Supply and Demand The quantity theory can be shown graphically in terms of the aggregate-supply aggregate-demand framework that has become popular in macroeconomic textbooks. Aggregate demand is the amount people will spend, or money multiplied by velocity. If money is 30 and velocity is 7, total spending will be 210. Total spending of 210 can be divided between prices and quantities in a number of ways. If the price level (P) is 1, quantity (Q) will be 210. If P is 2, Q will be 105, if P is 3, Q will be 70, if P is 5, Q will be 42, etc. When graphed with axes of price level and transactions, aggregate demand has the form of a rectangular hyperbola.1 This aggregate-demand curve is shown below as the MV curve. The quantity theory assumes that transactions are determined outside the model by the availability of resources and by technology. Because...

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