1.2–Aggregate demand Flashcards
What is aggregate demand?
The total demand for all goods and services in an economy at a given overall price level and in a given time period.
What are the components of aggregate demand?
Consumption, Investment, Government Spending, and Net Exports (Exports - Imports).
True or False: Aggregate demand increases when consumer confidence is high.
True.
Fill in the blank: Aggregate demand can be represented by the equation AD = _____ + I + G + (X - M).
C (Consumption).
What does the ‘C’ in the aggregate demand equation represent?
Consumption, or total spending by households.
What is the effect of an increase in interest rates on aggregate demand?
It typically decreases aggregate demand as borrowing costs rise.
Multiple Choice: Which component of aggregate demand is most affected by changes in consumer income?
A) Consumption.
What role does government spending play in aggregate demand?
It directly increases aggregate demand by purchasing goods and services.
True or False: An increase in net exports will lead to a decrease in aggregate demand.
False.
What is the relationship between aggregate demand and the business cycle?
Aggregate demand affects the level of economic activity and can lead to expansions or contractions in the business cycle.
Fill in the blank: A decrease in taxes will likely lead to an increase in _____ in the aggregate demand equation.
C (Consumption).
What is meant by ‘net exports’ in the context of aggregate demand?
The difference between the value of a country’s exports and imports.
Multiple Choice: Which of the following is NOT a component of aggregate demand?
C) Import Tariffs.
What impact does consumer confidence have on aggregate demand?
Higher consumer confidence generally leads to increased consumption and thus higher aggregate demand.
True or False: Aggregate demand is only a short-term concept in economics.
True.
What happens to aggregate demand during a recession?
Aggregate demand typically decreases due to lower consumer and business spending.
Fill in the blank: Investment in new capital goods is considered part of _____ in the aggregate demand equation.
I (Investment).
What effect does inflation have on aggregate demand?
High inflation can erode purchasing power and lead to a decrease in aggregate demand.
Multiple Choice: Which factor would most likely lead to a decrease in aggregate demand?
B) A rise in unemployment.
What is the significance of the aggregate demand curve?
It shows the relationship between the overall price level and the quantity of goods and services demanded.
True or False: An increase in government spending shifts the aggregate demand curve to the left.
False.
What does a rightward shift in the aggregate demand curve indicate?
An increase in aggregate demand.
Fill in the blank: If consumer spending decreases, the aggregate demand curve will shift to the _____ .
Left.
What is the formula for calculating aggregate demand?
AD = C + I + G + (X - M).
