Aggregate Demand 2.2.1

Question 1

Aggregate Demand

Answer 1

It shows us the total demand for goods and services produces in an economy in a year at a given price level and in any given time period.

Question 2

formula for AD

Answer 2

C + I + G + (X - M)

Question 3

Real balance effect on AD

Answer 3

An increase in price will mean that that the amount of money they have saved s no longer worth it used to be and so will offer less security. As a result, they will want to save more and so reduce their spending causing a contraction in AD.

Question 4

Effects of interest rates on AD

Answer 4

-high interest rates will cause people to encourage savings and borrow less. meaning that businesses will invest less ad there will be less consumption
-low interest rate will encourage borrowing and reduce savings. businesses will have ore incentive to borrow. consumption will increase. mortgage payments will reduce aswell. people will have more disposable income so they spend more.

Question 5

what does movement along the curve show

Answer 5

only occurs when there is a change in the PL.

Question 6

what does the shift in the AD show

Answer 6

when any of the AD components change.