AD 2.2

Question 1

What are the components of AD

Answer 1

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

Question 2

What is meant by C

Answer 2

Consumer spending on real output ( consumer spending on goods and services )

Question 3

What are factors influencing C

Answer 3

Income
Wealth effect
Consumer confidence
Interest rates

Question 4

What causes shift right in AD

Answer 4

1.Cuts in the rate of direct and indirect taxes
2.Depreciation in value of exchange rate
3.Increase in house prices and share prices
4.Increase in credit supply + lower interest rates

Question 5

What causes shift left in AD

Answer 5

1.Fall in net exports
2.Increase in interest rates
3.Cut in the real level of gov spending
4.Decrease in consumer confidence and household wealth

Question 6

What is the difference between a movement along the AD curve and a shift AD the ad curve

Answer 6

Movement along the AD curve is selectively due to a change in price level with no other non-price factors affecting it
A shift is due to non price factors

Question 7

How does income affect C

Answer 7

As real disposable income increases, C increases due to increased confidence. This is because of increased MPC

Question 8

How does