Aggregate Demand

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What is Aggregate Demand?
The total spending on real national output that all the economic agents in the economy wish to undertake
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What is the equation for AD?
AD = C + I + G + (X - M)
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When consumption rises...
Saving falls (and vice versa)
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What are the 6 determinants of consumption?
Interest Rates, Level of Income, Expectations about future income, Wealth, Consumer Confidence, Availability of Credit
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When interest rates rise...
consumption falls because the reward for saving is greater
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As income rises, consumption will...
Increase. Higher income households spend more but also save more.
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What are the 6 determinants of Investment?
Investment, Rate of Interest, Business Confidence, Technical Progress, Relative prices of Capital and Labour, Accelerator
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What is the accelerator?
This is the link between the current output and investment into capital needed for the future output
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What is a budget deficit (in the government sector)
This is when gov. spending is more than taxation. This represents an expansionary fiscal policy.
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Card 2

Front

What is the equation for AD?

Back

AD = C + I + G + (X - M)

Card 3

Front

When consumption rises...

Back

Preview of the front of card 3

Card 4

Front

What are the 6 determinants of consumption?

Back

Preview of the front of card 4

Card 5

Front

When interest rates rise...

Back

Preview of the front of card 5
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