2.2 Whiteboard Tasks Flashcards
Define Aggregate Demand
The demand for all goods and services in an economy
What are the four main component’s of AD?
C+I+G+(X-M)=AD
C=Consumption
I=Investment
G=Government Expenditure
X-M=EXports-IMports
Which one of the four components of AD has the biggest impact on AD?
Consumption has the biggest impact on AD
What does the consumption part of AD mean?
Consumers purchasing goods and services
What does the Investment part of AD mean?
Firms investing in buildings and machinery
What does the Government Spending part of AD mean?
Government spending on goods and services
What does the Exports-Imports part of AD mean?
Net Trade of Exports minus Imports
What are the 4 Consumption Components?:
Disposable Income
Consumer Confidence
Wealth Effects
Interest Rates
What are the 7 Components of Investment?:
Business Expectations
Economic Growth Rate
Access to Credit
Demand for Exports
Government Influence
Animal Spirits
Interest Rates
What are the 2 Components of Government Spending?:
Fiscal Policy
Trade Cycle Stage
What are the 5 Components of Exports-Imports?:
Domestic Real Income
Foreign Real Income
Exchange Rates
Protectionism
Non-Price Factors
What are the four types of government Spending?
Current Expenditure- Public sector wages
Capital Expenditure-Infrastructure
Current Transfers-Welfare Payments
Interest Payments- National Debt (Loans, Bonds)
What’s the impact of increasing consumer confidence on AD? (with shift on graph)
Consumers are willing to spend more money in the knowledge that their job is secure and financial outlook i positive. This means that on a graph AD will shift to the right as it is increasing.
What’s the impact of decreasing Interest Rates on AD? (with shift on graph)
Reward for saving will decrease and cost of borrowing will reduce which means more consumers will be spending money and so overall AD will increase. This means that on a graph AD will shift to the right as its increasing.
What’s the impact of increasing Foreign Real Income on AD? (with shift on graph)
Increasing Foreign Real Income will increase their demand for UK goods and services (exports) which will mean firms see a rise in their output. This means that on a graph AD will shift to the right as its increasing.
