Aggregate demand

Question 1

Aggregate demand

Answer 1

the total planned expenditure within an economy over a specific period of time

Question 2

equation for Aggregate Demand

Answer 2

C + I + G + (X - M)

Question 3

consumption

Answer 3

household spending

Question 4

investment

Answer 4

business spending

Question 5

reasons AD curve is downwards sloping

Answer 5

Real balance effect
Balance of trade
Increase rate effect

Question 6

movement along AD curve

Answer 6

change in price level

Question 7

shift in AD curve

Answer 7

change in any component of AD

Question 8

exogenous shocks

Answer 8

unexpected events that cause changes in demand, output and employment eg. a recession, a large change in commodity prices for a country that is a commodity exporter

Question 9

marginal propensity to consume

Answer 9

the change in consumer spending following a change in income, as a decimal

Question 10

key factors affecting consumer spending

Answer 10

real disposable income
employment and job security
household wealth
animal spirits (expectations/sentiment)
market interest rates

Question 11

factors affecting consumer confidence

Answer 11

economic growth
household debt
unemployment
house prices

Question 12

disposable income

Answer 12

income after tax and benefits

Question 13

discretionary income

Answer 13

income after taxes and all necessary payments

Question 14

savings ratio

Answer 14

percentage of disposable income saved rather than spent

Question 15

paradox of thrift

Answer 15

when people save in a recession, when they should be spending, making it difficult to escape recession, decreasing aggregate demand

Question 16

macroeconomic importance of saving

Answer 16

business survival
funding investment
buffer for consumers

Question 17

factors determining business investment

Answer 17

-actual & expected demand
-expected profits and business taxes
-interest rates & availability of business finance
-business confidence ie. animal spirits

Question 18

government spending affected by

Answer 18

state of economy
geopolitical factors
political priorities of the government
national debt

Question 19

budget deficit

Answer 19

government spending is greater than taxes

Question 20

budget surplus

Answer 20

government spending is less than taxes

Question 21

balanced budget

Answer 21

government spending is equal to taxes

Question 22

public sector debt/ national debt

Answer 22

owed by central and local government and by public (state owned) corporations

Question 23

private sector debt

Answer 23

owed by private businesses and households