Aggregate demand is the total amount of goods and services demanded at various price levels by all sectors in an economy(households,firms,government, and external world).

Aggregate demand curve is the curve that shows the relationship between general price level and production level.

“When prices increase,
 what is going to happen to the quantity of production?
 Increase, decrease or unchanged?”

An increase in government expenditure or a reduction in taxes leads to an increase in production (real income) at each price level.

Aggregate supply is the total amount of goods and services produced at various
price levels in an economy.

Aggregate supply curve is the curve showing the relation between the total amount of production and prices offered by all firms in an economy.

Classical economists argue that the short-run supply curve is completely vertical or rather steep because the economy is always at full of employment as a result
of dynamics of the market mechanism.

Equilibrium price level is the price level at which the aggregate demand is equal to aggregate supply.

Price stability is the situation in which the general price level in the economy either changes very slowly or does not change at all.

Production stability is to reduce the periodic fluctuations in GDP and maintaining economic growth rate close to the long-term average.

The two aims are complementary because they have close interactions with each other. According to the so-called divine coincidence in economics literature, output stability is provided automatically in an economy where price stability is provided.

The economic policy is influential on aggregate demand, as it is contractionary or expansionary.

First of all we assume that the AS curve does not change.
Secondly, we have to pay attention to what region the economy is on the AS curve.

Inflation is the continuous increases in general price level for a long time.

Cost-push inflation is the inflation that occurs as a result of increase in input costs.

Most of the economists today accept that the main factor that drives prices to increase continuously is continuously increasing money supply. This shows that whatever the initial reason to increase price level is, inflation occurs only when increasing money supply accompanies. Therefore, it is generally accepted in economics that inflation is always a monetary phenomenon.

Demand-pull inflation is the inflation caused by aggregate demand increases.

Stagflation is the situation in which prices increase while production decreases.

The increase in the money supply plays an important role in the emergence of demand-pull inflation as well as the consistent inflation.

This new emerging equilibrium position in the economy corresponds to

-high government expenditures,

-low investment expenditures,

-higher interest rate and

-increasing price level.