2.2 Aggregate Demand Flashcards
1
Q
What is Aggregate Demand?
A
- Total level of spending in the Economy
2
Q
What are the components of AD?
A
- C + I + G + (X-I)
3
Q
What are the 4 reasons for a downward sloping AD curve?
A
- Income Effect (Incomes do not adjust to increased price right away)
- Substitution Effect (UK price increase = increase demand for foreign goods)
- Real Balance Effect (Saving worth less with price increase)
- Interest Rate Effect
4
Q
What is the Marginal Propensity to Consumer?
A
- How much an increase in income affects spending
*MPC = Change in consumption / Change in income
*Poorer people have a higher MPC
5
Q
What are the 6 main factors for consumer spending?
A
- Disposable income (most important)
- MPC
- Interest Rates
- Wealth Effect
- Consumer Confidence
- Distribution of Income
6
Q
What are the 8 influences for investment?
A
- Rate of Economic Growth
- Demand for Exports
- Business Expectations and Confidence (Animal Spirits)
- Interest Rates
- Government regulations
- Access to credit
- Technology
- Costs
7
Q
What are the 3 influences of Government Spending?
A
- The trade Cycle
- Fiscal Policy
- Age distribution of population
8
Q
What are the 5 influences on net trade?
A
- Real Income
- Exchange rates (WPIDEC, SPICED)
- State of World Economy
- Degree of protectionism
- Prices
