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.
    • 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,
    • 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
    • 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
          • Foreign Income
            • The higher a country's real income the more it exports


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