Aggregate Demand Flashcards
(19 cards)
Aggregate demand (AD) =
C+I+G+(X-M)
Define aggregate demand
Aggregate demand is the total demand for countries goods and services at a given price level in a given time period
Define consumer expenditure
Spending by households on consumer products
Define government spending
Spending by the government on goods and services
Define investment
Spending on capital goods
Define exports
Products sold abroad
Define imports
Products bought from abroad
Define net exports
Value of exports minus the value of imports
Define trade surplus
The value of exports is exceeding the value of imports
Define trade deficit
The value of imports is exceeding the value of exports
Define rate of interest
The charge for borrowing money, and the amount paid for lending money
What is consumer expenditure divided by disposable income called?
Average propensity to consume (APC)
Define average propensity to save (APS)
The proportion of disposable income saved divided by total disposable income
What is the extent to which firms are using the capital goods called?
Capacity utilisation
Retained profits are:
Profit kept by firms financial investment
How may a cut in corporation tax effect levels of investment
An increase the amount of profit firms can keep, may result in increased levels of investment
Government spending can be influenced by:
- A desire to please the electorate
- level of economic activity in the economy
- War, terrorist attacks, crime
- The government’s view on the extent of market failure and its ability to correct it
Net exports can be affected by:
- Real disposable income abroad
- Real disposable income at home
- The domestic price level
- Exchange rates
- Government restrictions on free trade
If households and firms became more optimistic about economic prospects, _________ __________ and investment may increase.
Consumer expenditure
