Aggregate Demand
- Created by: ajshala1
- Created on: 27-09-18 18:49
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- Aggregate Demand
- The total demand for goods and services within an economy.
- AD = C+G+I+(X-M)
- Consumption
- The total spending by households on goods and services.
- Factors of Consumption
- Income
- Generally, as disposable income rises, consumption will also rise.
- Interest Rates
- Higher interest rates lead to less consumer spending, as consumers look to take advantage by saving.
- Consumer Confidence
- When consumers feel more confident about the economy and their own financial situation, they spend more.
- Income
- Factors of Consumption
- The total spending by households on goods and services.
- Investment
- money spent by firms on assets which they'll use to produce goods.
- Factors of Investment
- Risk
- If there is a high risk that a firm won't benefit from it's investment, then it's unlikely firm will invest.
- Government Incentives
- Subsidies or reductions in tax can affect the level of investment. How much money they have at their disposal
- Interest Rates
- Firms often borrow the money they want to invest, so when interest rates are high, there is less investment,
- Risk
- Factors of Investment
- money spent by firms on assets which they'll use to produce goods.
- Government Expenditure
- The money spent by the government on public goods and services.
- Factors of Government Expenditure
- Amount of Tax Revenue
- Economic Growth
- if economic growth is slow, then a government may overspend in order to boost economic growth
- Factors of Government Expenditure
- The money spent by the government on public goods and services.
- Net Exports
- Exports - Imports
- Factors of Net Exports
- Exchange Rate
- if the value of a currency is high then imports will be cheaper and exports will be more expensive which will worsen net exports.
- In the short run however, it will be beneficial as the value of exports will be higher due to time lag
- if the value of a currency is high then imports will be cheaper and exports will be more expensive which will worsen net exports.
- Foreign Income
- The higher a country's real income the more it exports
- Exchange Rate
- Factors of Net Exports
- Exports - Imports
- The total demand for goods and services within an economy.
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