Aggregate Demand

Question 1

Define: Aggregate Demand

Answer 1

The total amount of spending on goods and services produced in an economy during a period of time

Question 2

What does the aggregate demand curve show the relationship between

Answer 2

The total demand and the price level

Question 3

3 reasons for the downward sloping AD curve

Answer 3

Exports and imports
Consumption
Interest rates

Question 4

How do exports and imports explain the reason for the downward sloping AD curve

Answer 4

Low price level in the UK means that UK goods become more competitive leading to higher exports. Exports is a component of AD so AD will be higher

Question 5

How does consumption explain the reason for the downward sloping AD curve

Answer 5

At a low price level, consumers are likely to have higher REAL disposable incomes and therefore spend more

Question 6

How does interest rates explain the reason for the downward sloping AD curve

Answer 6

At a lower price level, interest rates usually fall. This causes higher AD.