Chapter 4:aggregate demand and aggregate supply and their interaction


Chapter 4:aggregate demand and aggregate supply and their interaction

Aggregate demand

The total demand for a country’s goods and services at a given price level and in a given time

Price level

The average of each of the prices of all the products produced in an economy

Consumer expenditure

Spending by households on consumer products


Spending on capital goods

Government spending

Spending by the central government and local government on goods and services


Products sold abroad


Products bought from abroad

Net exports

The value of exports minus the value of imports

Transfer payments

Money transferred from one person or group to another not in return for any good or service

Job seeker’s allowance

A benefit paid by the government to those unemployed and trying to find a job

Trade surplus

The value of exports exceeding the value of imports

Trade deficit

The value of imports exceeding the value of exports

Consumer confidence

How optimistic consumers are about future economic prospects

Rate of interest

The charge for borrowing money and the amount paid for lending money

Average propensity to consume (APC)

The proportion of disposable income spent. It is consumer expenditure / disposable income

Net savers

People who save more than they borrow


A stock of assets, e.g. property, shares & money held in savings account

Distribution of income

How income is shared out between households in a country


A sustained rise in the price level


Real disposable income – spending

Average propensity to save (APS)

The proportion of disposable income saved. It is saving / disposable income

Target savers

People who save with a target figure in mind


Spending more than disposable income

Savings ratio

Savings as a proportion of disposable income

Capacity utilization

The extent to which firms are using their capital goods

Corporation tax

A tax on firms’ profits

Retained profits

Profit kept by firms to finance investment

Unit cost

Average cost per unit of output

Real GDP

The country’s output measured in constant prices and so adjusted for inflation

Gross domestic product (GDP)

The total output of goods and services produced in a country

Exchange rate

The price of one currency in terms of another currency


A tax on imports

Government bond

A financial asset issued


No comments have yet been made