aggregate demand Flashcards
what is the defintion for aggregate demand
the total level of real expenditure on goods and services produced within a country
what is the equation for AD
consumption+investment+government spending+(export-imports)
what will cause a shift to the left on an ad graph
an increase in interest rates, a strong currency, an increase in income tax, a cut in government spending.
what causes a shift to the right on an ad graph
a weak currency, fall in interest rates, a reduction in income tax
what does a shift on an ad graph show
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.
what is the marginal propensity to consume
the change in how much disposable income is spent on goods
how will a strong currency affect AD
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
how will a weak currency affect AD
a week currency will make it cheaper for other countries to export uk goods, this will see a rise in net exports
what factors affect consumption
interest rates, income, tax rates, consumer confidence, unemployment, recession
what factors affect the rate of business investment
risk ,business confidence, interest rates, cut in taxes
what is the differnce between savings and investment
saving are usually made by households and investment is usually made by firms
how will a high interest rate affect AD
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.
how will a low interest rate affect AD
a low interest rate will make people less likely to save money
will an increase in interest rates shift an AD curve inwards or outwards?
inwards and a shift to the left
will a weak currency shift the AD curve to the right or left?
right
will a strong currency shift the Ad curve left or right
left
what is government spending
money spent by the government on public goods and services
what will happen is exports is higher than imports
aggregate demand will increase
what factors affect imports and exports
exchange rate, inflation, tariffs
What will cause a budget deficit
When AD is low the government may overspend
How will a high consumer confidence affect AD
People are more likely to consume and less likely to save, meaning there is an increase in AD
How will a low consumer confidence affect AD
People will feel negatively about the economy, meaning they are more likely to save than consume, decreasing AD
Contraction
The movement up an AD curve, caused by price factors
Extension
A movement down the AD curve, caused by price factors
