2. Aggregate Demand

Question 1

Components of AD

Answer 1

-Consumption(60%)
-investment (15-20%)
-government spending (18-20%)
-balance of payments (-5%)

Question 2

What is the most important factor in determining consumption

Answer 2

Disposable income, the money consumers have left to spend after taxes and benefits

Question 3

Influences of consumption

Answer 3

Interest rates
Consumer confidence
Wealth effects
Distribution of income
Taxes & attitudes

Question 4

Influences on investment

Answer 4

-rate of economic growth
-business expectations and confidence
-demand for exports
-interest rates
-influence of government and regulations
-access to credit
-retained profits
-technology change
-costs

Question 5

Influences on government spending

Answer 5

-trade cycle
-fiscal policy
-age distribution of the population

Question 6

Influences on net trade

Answer 6

-real income
-exchange rates
-state of world economy
-degree of protectionism
-non-price factors
-prices

Question 7

why does consumption increase growth

Answer 7

firms react to the increase in demand which increases output and therefore growth

Question 8

why does growth reduce unemployment

Answer 8

labour is a derived demand

Question 9

how does growth increase inflation

Answer 9

puts pressure on the factors of production