The dynamic aggregate demand (DAD) curve is a negatively sloped line with inflation measured along the vertical axis and income measured along the horizontal axis. This line indicates which demand-side equilibrium levels of income obtain at different inflation rates.

The DAD curve is a generalization of the Mundell-Fleming model. It is useful to derive the DAD curve from the Mundell-Fleming model in two steps:

Step one
shows how the aggregate demand (AD) curve is derived from the Mundell-Fleming model.

Step two
shows how the AD curve is modified into the DAD curve.