2.2.1 The Characteristics Of Aggregate Demand

Question 1

Aggregate Demand (AD)

Answer 1

The total demand for a country’s goods and services at a given price level in a given period of time

Question 2

The Wealth Effect

Answer 2

As price level decreases, the purchasing power of income increases therefore consumption increases so one of the extensions of aggregate demand increases hence real GDP increases

Question 3

The Trade Effect

Answer 3

As price level increases, exports become more competitive and imports become less competitive so AD increases

Question 4

The Interest Effect

Answer 4

As price level decreases, interest rates can be kept lower in the economy which stimulates higher consumption and reduces the value of exchange rate, boosting export performance and increasing Aggregate Demand

Question 5

Consumer spending

Answer 5

How much consumers spend on goods and services

Question 6

Government spending

Answer 6

How much the government spends on state goods and services (18-20% of GDP)

Question 7

Exports Minus Imports (X-M)

Answer 7

The value of the current account on the balance of payments