Aggregate Demand

Question 1

What is Aggregate Demand ?

Answer 1

Aggregate demand is the total level of planned real expenditure on goods and services produced within a country in a given time period.

Question 2

What are the 5 components on Aggregate Demand ?

Answer 2

• Household spending ( C )
• Gross Fixed Capital investement Spending / Value of the change in Stocks ( I )
• Government spending on Public Services ( G )
• Exports of Goods and Services ( X )
• ( Minus ) Imports of Goods and Services ( M )

Question 3

What is the equation for Aggregate Demand ?

Answer 3

C + I + G ( X - M )

Question 4

What does Gross Domestic Product ( GDP ) mean ?

Answer 4

The actual value of expenditure, in other words are all of the products and services that are produced to be consumed.

Question 5

What are 4 disturbances to the Economic Cycle that are caused by changes in Aggregate Demand ?

Answer 5

• Recession
• Slow - Down
• Recovery
• Boom

Question 6

What would happen to AD if the Government Removed / Reduced State Welfare Spending ( Benefits ) ?

Answer 6

The people who receive benefits will be left with much less disposable income, and therefore will spend less. This will negatively affect AD as consumer spending is the biggest component of Aggregate Demand

Question 7

What earners are most effected by Income Tax, and what effect does that have on AD

Answer 7

Low Income Workers - If they earn £20,000 a year and are taxed 20%, they are left with £16,000. After their necessities are payed for, they are left with barely any income to spend, negatively impacting AD.