14. AD

Question 1

Define AD

Answer 1

AD: the total spending on goods and services in a period of time at a given price level

Question 2

List components of AD

Answer 2

1. Concumption: total spending by consumers on domestic goods and services
2. Investment: ddition of capital stockto the economy
3. Gov spending: amounts depend on policies and its objectives
4. Net exports: exports - domestic goods bought by foreigners, imports - goods and services bought from foreign producers

Question 3

Movement along vs shift of AD

Answer 3

Movement: due to change in price level

Shift: due to change in components of AD

Question 4

What influences changes in consumption?

Answer 4

• changes in income
• chnages in interest rates
• changes in wealth: change in assets people own - change in house prices/value of stocks and shares
• chnages in expectations/consumer confidence
• household indebtedness

Question 5

What causes change in investment?

Answer 5

• interest rates
• chnages in the level of national income
• technological change
• xpectations/business confidence

Question 6

What infleunces changes in gov spending?

Answer 6

• change in policies
• economic activity - correct balances

Question 7

What causes changes in net exports?

Answer 7

exports, imports

• change in exchange rates
• protectionism
• expectations and business/consumer confidence

Question 8

Gov policies which affect AD

Answer 8

• fiscal: levels of taxes monitor amount of disposable income
• monetary: by sentral bank - levels of interest rates monitor disposable income, supply of money - price level

Question 9

Define fiscal policy

Answer 9

FISCAL POLICY: a set of gov policies relating to its spending and taxation rates

Question 10

Define monetary policy

Answer 10

MONETARY POLICY: a set of official policies monitoring the supply of money and the level of interest rates in an economy

Question 11

Explain expansionary fiscal policy

Answer 11

Expansionary fiscal policy:

• encourage greater consumption/investment/gov spending