Aggregate Demand Flashcards
What is aggregate demand?
The total demand for all goods and services in an economy
What is the formula for aggregate demand?
Consumption + Investment + Government spending + (Exports - imports)
What is consumption?
Demand from households for goods and services
What is investment?
Firms demand for capital goods
What is government spending?
Government demand public goods e.g. schools and hospitals
What is net exports?
(Exports-Imports)
Foreigners demand our exports and we demand goods from other countries
How to work out the percentage of each component?
Percentage = Component/Total x 100
What are the sizes of the components of AD in the UK economy?
Consumption- 60%
Investment- 14%
Government Spending- 25%
Net exports- 1%
What causes an extension in AD?
When price level decreases
What causes a contraction in AD?
When price level increases
