Aggregate Demand

Question 1

Components of aggregate demand

Answer 1

• consumption
• investment
• government spending
• exports - imports

Question 2

What are shocks

Answer 2

An unexpected event that causes a change in the level of demand, output and employment

Question 3

Some causes of AD shocks

Answer 3

• large rise/fall in the exchange rate
• recession in other counties
• slump in the housing market
• credit crunch
• unexpected cut/rise in interest rates or taxation

Question 4

Factors that cause a shift in aggregate demand

Answer 4

• expectations
• interest rates (monetary policy)
• fiscal policy
• other economies
• income / wealth
• supply of credit (from the baking system)