aggregate demand Flashcards
what is aggregate demand
demand for all goods and services in an economy added up over a given period of time.
what is the formula for aggregate demand
AD=C+G+I+(X-M)
what is consumption
consumption is the total amount spent by households on goods and services
what is investment
money spent by firms on capital good
what is the multiplier effect
when an initial increase in injections lead to a larger increase in aggregate demand
what is the uk’s multiplier ratio as from 2016
1.375
what does the marginal propensity to consume tell us
how much consumers will spend if given an additional £
what is marginal propensity to withdraw
is the proportion of any additional income that is withdrawn from the circular flow (i.e. saved, spent on imports or taxed).
what is the downward multiplier effect
The downward multiplier effect is where an initial increase in withdrawals leads to a larger decrease in aggregate demand.
meaning of animal spirits
nimal Spirits refer to investor confidence, when animal spirits are high investor confidence is high.
meaning of wealth effect
When changes in consumers’ wealth affect their confidence and spending.
