Aggregate Demand

Question 1

Aggregate Demand

Answer 1

Is all expenditures for the entire economy added together, or the sum of all demand in an economy

Question 2

Equation for AD

Answer 2

C+I+G+(X-M)

Question 3

Consumer expenditure (C)

Answer 3

Spending by households on goods and services

E.g. Expenditure on goods and services

Question 4

Investment (I)

Answer 4

Spending by firms on investment goods

E.g. investment may be required to replace worn out, or failing machinery, equipment, to increase productive capacity

Question 5

Government spending (G)

Answer 5

Spending on state-provided goods and services as schools, hospitals, including payments to workers. This also includes spending by government on investment goods like new roads and new school buildings

Question 6

Net exports (X-M)

Answer 6

Exports (X) foreigners purchase goods and services produced in the domestic economy
Imports (M) Occur when consumers, firms and government purchase goods produced abroad
If (M) is higher than (X) it reduces the size of AD