Aggregate Demand Flashcards
What is Aggregate Demand
The total of all demands or expenditures in the economy at a given price level
What are the sources of Aggregate Demand
Households
Firms
Foreigners
Government
What are the 4 components of AD
Consumption
Capital Investment
Government soending
Net exports
What is the formula for AD
Consumption + Capital Investment + Goverment spendings + (Exports-Imports)
On an AD graph, what is on the X and Y axis
X= real income/real national output/Real GDP
Y=Price level
Why is an AD curve downwards sloping
There is an inverse relationship between price level and national income
What is real income
How much of a good/service you can buy with a set income.
What factors affect real income
Price level
Inflation
Describe the real balance effect
As price level increases,the real income falls and consumers are less able to buy what they want or need
Higher price level leads to domestic goods becoming less price competitive in foreign markets
A country with increasing inflation rates are likely to see a decrese in exports unless:
They are selling high quality products
The purchasing country has a higher inflation rate
An increase in aggregate demand leads to
Economic growth
Lower unemployment
What causes a leftwards shift of AD
Decrese in consumption,investment,government spending,exports and a increase in imports
What is the formula for net investment
gross investment-depreciation
What is gross investment
the original value of a capital good
What part of AD do benefits increase
Consumption
NOT GOVERNMENT SPENDING
