Aggregate Demand Flashcards
1
Q
What is Aggregate Demand?
A
- Total spending on Goods and Services in an economy over a period of time.
- AD=GDP
2
Q
What is Consumption?
A
- Spending on Goods and Services.
3
Q
What is the Gross Domestic Fixed Capital Formation?
A
- Investment spending on assets used over a number of years to produce goods and services.
- Includes spending on capital goods and on working capital.
- Net investment includes depreciation. Gross investment doesn’t.
4
Q
What is Government Spending?
A
- Spending on publicly provided goods and services.
5
Q
What are exports?
A
- UK output sold abroad.
6
Q
What are imports?
A
- Foreign output purchased by UK.
7
Q
What are the proportions in the UK for aggregate demand?
A
- Consumption, 61 percent
- Investment, 15 percent
- Government spending, 25 percent
- Net Exports, -1 percent.
8
Q
What are the two axis on the Aggregate Demand Curve?
A
- Price level.
- Real national output.
9
Q
What do the two axis on the aggregate demand curve mean?
A
- Price level - the average prices for all goods and services in an economy. i:e: its inflation.
- Real National Output - the output of the economy taking into account inflation.
10
Q
What are the reasons of the downward sloping curve?
A
- At higher prices, total demand decreases.
- As P level increases, UK goods become less competitive = decrease in X, increase in M (international effect).
- Real balance effect - As P level rises, the real value of income falls - consumers, govt, business able to buy what they want or need.
- As Interest Rate, as P level rises, the Bank of England will raise the interest rate which will reduce consumption and investment.
11
Q
What will the changes in the price level do to the AD curve?
A
- It will cause movements.
12
Q
What are the causes of shifts in the AD Curve?
A
- Changes in the components of AD.
13
Q
What does a rise in the price level do to the aggregate demand?
A
- Contracts it.
14
Q
What does a rise in the price level do to the aggregate demand?
A
- Expands it.
