Aggregate Demand Flashcards
What are the components of aggregate demand?
Consumer Expenditure
Investment
Government Spending
Net exports
What are net exports?
Exports - Imports
What is the equation for aggregate demand?
AD = C + I + G + X - M
What is AD?
All expenditure for the entire economy added together
What is the Investment component of AD?
Spending by business’ on investment goods
What are investment goods?
What a business needs to buy in order to be able to sell its goods e.g a delivery company needs vehicles to sell so the vehicles are investment goods
What is consumer expenditure and what’s another name for it?
Spending by households on goods and services - also knows as consumption
What is government spending and e.g?
includes spending by government on investment goods like new roads - doesn’t include government employees salaries
What is a fiscal multiplier?
The fiscal multiplier is the ratio in which the change in a nation’s income level is affected by government spending
What is a government surplus?
When the government have more in tax revenue than It has spent
What is Austerity?
A package of policies to reduce budget deficit (mainly cutting spending)
What is a deficit?
Opposite of surplus - government have spent more money than raised in tax revenue
What doesn’t government spending include, why isn’t it included and e.g? (AD)
Transfer payments - e.g housing benefit, jobseekers allowance, state pensions because the money goes to consumers and is included in consumer expenditure
