Components of Aggregate Demand
- Created by: samii samra
- Created on: 08-03-14 14:57
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- Aggregrate Demand
- Consumption (60%)
- Consumer Confidence
- job security and future prospects= more likely to buy more durable goods
- is spending by households on goods & services
- Wealth Effects
- increase in value of assets e.g. house= feel more wealthy= spend more
- Interest Rates
- decreasing interest rate = less incentive to save
- level of employment & wage rates
- multiplier effects- more income earnt= more spend= someone else's income..
- Consumer Confidence
- Investment
- is spending by firms on capital goods
- Interest Rates
- decrease interest rate= costs less to borrow= more I
- Competitors
- Future Sales patterns & interest rates
- Government
- cuts in cooperation tax & relaxation of reguluations
- Government Expenditure
- change spending to influence AD through Discretionary Fiscal Policy
- spend more than taxation = BUDGET DEFICIT
- Doesn't need to be balanced in the short run
- Net Exports (X-M)
- Exports= goods & services out, money flowing into a country (minus imports= money flowing out
- Change in Exchange Rates
- stronger (increased) exchange rates= net export decrease as less competitive
- short run= value of exports increase & import decrease- spending patterns take time to adjust
- stronger (increased) exchange rates= net export decrease as less competitive
- State of World Economy
- if country exports dependent growth rates of others
- e.g. Eurozone Crisis--- spending on Chinese imports falls = china growth rates fall
- if country exports dependent growth rates of others
- Non-price Factors
- demand for exports & imports-- quality reliability, tariffs etc
- Value VS Volume
- demand for exports & imports-- quality reliability, tariffs etc
- Consumption (60%)
- EXCHANGE RATES= value of a currency in terms of another
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