2.2.1 - The characteristics of aggregate demand

Question 1

What is aggregate demand?

Answer 1

This is the total demand of goods/services in an economy at any given price level over a period of time.

Question 2

What are the components of aggregate demand?

Answer 2

• Consumption
• Investment
• Government spending
• Net Exports

Question 3

What’s the formula for aggregate demand.

Answer 3

C + I + G + ( X - M )

Question 4

Why do movements along the aggregate demand curve occur?

Answer 4

Movements across the aggregate demand curve occur because of a change in the price level

Question 5

Why do shifts on the aggregate demand curve occur?

Answer 5

These shifts occur if there’s a change in any of the components of aggregate demand. So if there’s a change in consumption, investment, government spending or net exports a shift will occur.

Question 6

What happens to aggregate demand when there’s a rise in price level?

Answer 6

This leads to a contraction in aggregate demand.

Question 7

What happens when there’s a decrease in price level?

Answer 7

This causes an expansion (goes down on the AD line) in aggregate demand.

Question 8

What happens when any of the components of aggregate demand increase?

Answer 8

This will result in a shift outwards of aggregate demand.

Question 9

What happens when any of the components of aggregate demand decrease?

Answer 9

Aggregate demand will decrease.

Question 10

What is the price level?

Answer 10

This is the average prices for all the goods and services in the economy.

Question 11

What is real national output?

Answer 11

This is the output of the economy taking into account inflation.

Question 12

Label/Describe what’s on an aggregate demand curve.

Answer 12

• X axis labelled as “Price Level”
• Y axis labelled as “Real National Output”
• The aggregate demand line (labelled like demand on an a S&D)
• The “P” on the X axis
• The “Y” on the Y axis