Aggregate Demand Flashcards
What would happen if there was a rise in injections
Would lead to a rise in AD ( a rise in exports caused by higher growth in other European countries). If there was s apare capacity in the economy, an increase in injections would lead to a higher economic growth
What is AD (formula)
C + I + G + (X - M)
What causes a movement along the AD curve
A change in price level
What is consumer spending determined by
Disposable income, consumer confidence, house prices/wealth, income tax, interest rates and cost of living.
What does investment affect
AD and AS
What are factors that affect investment
Confidence, animal spirit (did people expect their business to grow), interest rates, availability of finance, government regulations and economic growth.
How do interest rates affect investment
Investment is often financed by borrowing or using savings. Lower interest rates make it cheaper to finance investment and make more projects worthwhile.
How does economic growth affect investments
Improvements in economic growth and AD will ten to increase investment. The demand for overseas and the demand for exports are also important.
What is government expenditure (G)
The transfer payments and direct spending, such as capital investment in public roads.
What is gov spending influenced by
Fiscal policy, economic cycle and political cycle.
What is the fiscal policy
Government spending and taxations
What is the monetary policy
The management of interest rates and money supply
What is the supply side policy
If focuses on improving the efficiency of the economy
what happens to AD if inflation increased
There would be a decrease in AD as interest rates would increase, making people save more. Saving is a type of withdrawal.
