aggregate demand

Question 1

what is the defintion for aggregate demand

Answer 1

the total level of real expenditure on goods and services produced within a country

Question 2

what is the equation for AD

Answer 2

consumption+investment+government spending+(export-imports)

Question 3

what will cause a shift to the left on an ad graph

Answer 3

an increase in interest rates, a strong currency, an increase in income tax, a cut in government spending.

Question 4

what causes a shift to the right on an ad graph

Answer 4

a weak currency, fall in interest rates, a reduction in income tax

Question 5

what does a shift on an ad graph show

Answer 5

it shows how much the output at any given price can change, for example if it shifts outwards then more can be produced at any price.

Question 6

what is the marginal propensity to consume

Answer 6

the change in how much disposable income is spent on goods

Question 7

how will a strong currency affect AD

Answer 7

a strong currency will make exports more expensive, this means other countrys import less from the uk and can lead to a fall in net exports

Question 8

how will a weak currency affect AD

Answer 8

a week currency will make it cheaper for other countries to export uk goods, this will see a rise in net exports

Question 9

what factors affect consumption

Answer 9

interest rates, income, tax rates, consumer confidence, unemployment, recession

Question 10

what factors affect the rate of business investment

Answer 10

risk ,business confidence, interest rates, cut in taxes

Question 11

what is the differnce between savings and investment

Answer 11

saving are usually made by households and investment is usually made by firms

Question 12

how will a high interest rate affect AD

Answer 12

a high interest rate is likely to increase household saving, this will affect the amount of disposable income they have and decreases the amount of goods they buy. also, consumers will have less money if interest rates on existing loans increase.

Question 13

how will a low interest rate affect AD

Answer 13

a low interest rate will make people less likely to save money

Question 14

will an increase in interest rates shift an AD curve inwards or outwards?

Answer 14

inwards and a shift to the left

Question 15

will a weak currency shift the AD curve to the right or left?

Answer 15

right

Question 16

will a strong currency shift the Ad curve left or right

Answer 16

left

Question 17

what is government spending

Answer 17

money spent by the government on public goods and services

Question 18

what will happen is exports is higher than imports

Answer 18

aggregate demand will increase

Question 19

what factors affect imports and exports

Answer 19

exchange rate, inflation, tariffs

Question 20

What will cause a budget deficit

Answer 20

When AD is low the government may overspend

Question 21

How will a high consumer confidence affect AD

Answer 21

People are more likely to consume and less likely to save, meaning there is an increase in AD

Question 22

How will a low consumer confidence affect AD

Answer 22

People will feel negatively about the economy, meaning they are more likely to save than consume, decreasing AD

Question 23

Contraction

Answer 23

The movement up an AD curve, caused by price factors

Question 24

Extension

Answer 24

A movement down the AD curve, caused by price factors

Question 25

Multiplier effect

Answer 25

The overall increase in gdp is higher than the original injection

Question 26

What will happen to AD if household saving increases

Answer 26

It will decrease. Saving is the opposite to consumption and saving will mean less consumer income is spent on products

Question 27

What will cause a household to save more

Answer 27

High interest rates
Low consumer confidence
High unemployment