2.2 Aggregate Demand

Question 1

What is the formula for aggregate demand?

Answer 1

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

Question 2

What are the components of aggregate demand?

Answer 2

Consumption
Investment
Government spending
Net exports

Question 3

What is consumption?

Answer 3

Spending on consumer goods and services over a period of time

Question 4

What is disposable income?

Answer 4

The money consumers have left to spend after taxes

Question 5

What is the most important factor in determining the level of consumption?

Answer 5

Disposable income

Question 6

Formula for MPC

Answer 6

MPC=change in consumption/change in income

Question 7

What is savings?

Answer 7

Money that is not spent out of income

Question 8

What is the marginal propensity to save?

Answer 8

How much of an increase in income is saved

Question 9

What is investment?

Answer 9

The addition of capital stock to the economy

Question 10

What is net investment?

Answer 10

Gross investment minus the value of depreciation

Question 11

What are some influences on investment?

Answer 11

Rate of economic growth
Interest rates
Access to credit
Business expectation

Question 12

What is net trade?

Answer 12

Total exports minus the total imports

Question 13

Influences of net trade balance

Answer 13

Real income
Exchange rates
Prices