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Aggregate demand: the total demand for a country's goods and services at a given price
level in a given time period.
AD=C+ I +G + (X-M)

Price value: the average of each of the prices of all products produced in an economy.
Consumer expenditure: spending by…

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Real Disposable Income: Main influence on consumer expenditure. Richer households
and richer economies tend to spend more than poorer ones. Yet proportion of
income to spend (APC) may fall as real disposable incomes rise. (e.g. a banker may
continue his normal spending's, even if…

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Saving Schemes: When people agree to save a certain amount on a regular basis in ie
Saving schemes: When people agree to save a certain amount regularly in insurance
schemes or pensions.
Range of financial institutions: A country with a high number of established and
trusted financial institutions, people find…

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2.) A higher interest rate may make it more expensive to borrow which may
discourage some investment projects.
3.) A change in the rate of interest may affect the expected return on
investments. (Higher interest rates are likely to reduce investments, as firms may
assume that consumer expenditure will fall)…

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Real disposable incomes at home: A rise in income at home may result in a fall in
exports. As firms may divert more products to the home market to meet domestic
The domestic price level: The value of exports may fall and the value of imports may
rise if…

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AD curve is downward sloping because:

THE WEALTH EFFECT: The change in a household/firms real wealth when the price
levels change. A fall in the price level increases the amount of goods and services
that wealth kept in financial institutions can buy.
A rise in price level changes the purchasing…

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A decrease in AD may be due to a fall in share prices on the global market. Possibly because
wealth would decline which would be likely to reduce consumption, and if firms find it
difficult to raise finance, investment may decline.

Aggregate supply: the total amount that producers…

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A change in AS= the total output that producers are willing to supply will alter.
A decrease in AS shown by the AS curve shifting left.
An increase in in AS is shown by a shift to the right
Main cause for the change…

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Quality may be improved by management training and improved education.
Variety of ways in which quality of land can be improved. Productivity of farmland may
be improved through the usage of fertilisers.

Macroeconomic Equilibrium: a situation where aggregate demand equals aggregate supply
and real GDP is not changing.…

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The multiplier effect: the process by which any change in a component of aggregate demand
results in a greater final change in real GDP.

When injections exceed leakages, AD will increase. Rise in AD will have a greater final
effect on the economy.
Multiplier effect occurs when people spend money…


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