2.2.1 Characteristics Of AD ✅

Question 1

What is aggregate demand?

Answer 1

Total level of demand in an economy at any given price at a moment in time.

Question 2

What is the formulae for aggregate demand?

Answer 2

C+I+G+(X-M)
Consumption + investment + gov spending + (exports - imports)

Question 3

What is the most important AD component? Percentage of it?

Answer 3

Consumption 60% of AD

Question 4

What is the least important AD component? Percentage?

Answer 4

Net trade 5%

Question 5

What percentage of ad AD is investment and gov spending?

Answer 5

15-20%.

Question 6

What is the x and y axis in the ad curve? What way is the AD slope slopping?

Answer 6

X = GDP
Y = price level
Downwards sloping.

Question 7

Why is the AD curve downwards sloping?

Answer 7

• wealth effect.
• trade effect.
• interest effect.

Question 8

What is a movement along the AD curve and what is it caused by?

Answer 8

Change in prices.
Inflation or deflation.

Question 9

What will cause an AD shift?

Answer 9

Change in any of the components.

Question 10

What is the interest rate effect? Why do you need to be carful when talking ab ad graph and interest rates?

Answer 10

When prices rise so do interest rates due to demand increase for money. If they have effected AD through interest rate effect or if the gov increases interest rates. (Gov changing it is a shift other is a movement due to being caused by change in price).

Question 11

Explain the wealth effect? What is this a shift or movement?

Answer 11

When prices fall purchasing power increases and people feel wealthier therfore will spend more.

Question 12

Explain the trade effect? Shift or movement?

Answer 12

As PL decrease this will increase exports as they become more competitive but decrease exports meaning AD will increase.
Movement due to it being a change in PL.