Aggregate Demand

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  • Aggregate Demand
    • AD = C + G + I (X-M)
    • Aggregate means ‘total’ and in this case we use the term to measure how much is being spent by all consumers, businesses, the government and people and firms overseas.
    • Changes in expectations
      • Confidence falls > Saving increases > Demand falls
    • (Monetary policy) Changes in interest rates > Lowers cost of borrowing > More consumption > AD rises
      • Changes in interest rates > Investment raises > AD rises
    • (Changes in fiscal policy) Increased government spending > Increased AD
    • (Fiscal policy) Increased income tax rates > increases disposable income > increased consumption > AD rises
    • Depreciation in the pound > imports dearer > exports cheaper > net result should be thatthe AD rises


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