AD And Shifts Flashcards
What is the definition of AD
The total demand for a countries goods and services at a given price level in a given time period
What is the AD formula
AD=C+I+G+(X-M)
What direct is the AD curve
Downward sloping
What is the wealth effect
As price decreases, the purchasing power of income will increase, meaning they are more likely to spend on goods and services in the economy. Increasing consumption
What is the trade effect
As the price decreases, exports become more competitive, while imports become less competitive. This leads to greater exports and less imports.
What is the interest effect
As the price level decreases, interest rates can be kept lower. Meeting the inflation target. Stimulate consumption, investment and reduces the value of the exchange rate leading to greater exports
When does AD shift
When C, I, G or (X-M) change independent of the price level
