Aggregate Demand

Question 1

What are the 5 factors of AD?

Answer 1

Consumer spending, Investment spending, Government spending, Export receipts, Import payments.

Question 2

What affects consumer spending?

Answer 2

Income, direct/income tax, consumer spending, interest rates, inflationary expectations

Question 3

What affects investment spending?

Answer 3

Interest rates, business confidence

Question 4

What affects government spending?

Answer 4

Government spending decisions

Question 5

What affects export receipts?

Answer 5

Exchange rates, overseas demand, overseas trade barriers (tariffs), tastes/preferences

Question 6

What affects import payments?

Answer 6

Exchange rates, tastes/preferences, NZ trade barriers (tariffs)

Question 7

In NZ, do exports or imports have a great affect on inflation?

Answer 7

Exports

Question 8

Which six points need to be included when answering questions?

Answer 8

1. The condition 2. What it causes 3. Which factor of AD it affects 4. How it effects AD 5. Effect on graph 6. Inflation/Deflation

Question 9

Increase in income

Answer 9

C^ = AD^ = DPI

more disposable income

Question 10

Decrease in direct tax

Answer 10

Y^ = ^C = ^AD = DPI

less income going out as tax

Question 11

Increase in consumer confidence

Answer 11

C^ = AD^ = DPI

(consumer confidence increasing means consumers are

Question 12

Decreased interest rates

Answer 12

Y^ = C^ = AD^ = DPI
(less encouraged to save because they’re getting lower returns; more encouraged to take out loans because they don’t have to pay as much back, so disposable income is increased)

Question 13

Increased inflationary expectations

Answer 13

C^ = AD^ = DPI
(if consumers think the price level is going to rise in the future, they are likely to want to buy more now, while the prices are not so high)

Question 14

Increased business confidence

Answer 14

I^ = AD^ = DPI
(if businesses become more confident then people are more likely to want to invest in the company which increases investment spending)

Question 15

Increased government spending decisions

Answer 15

Y^ = C^ = AD^ = DPI

when inflation is too low, the government decreases taxes to increase income and consumer spending

Question 16

Decreased exchange rates on export receipts

Answer 16

X^ = AD^ = DPI

if the NZ dollar depreciates, other countries will find it cheaper to buy NZ goods, so exports will increase

Question 17

Decreased exchange rates on import payments

Answer 17

M↓ = AD^ = DPI
(if the NZ dollar depreciates, it will be more expensive for NZ to purchases goods from other countries, so imports decrease)

Question 18

Increase in overseas demand

Answer 18

X^ = AD^ = DPI

Question 19

Decrease in overseas trade barriers

Answer 19

X^ = AD^ = DPI

Question 20

Increase in NZ trade barriers

Answer 20

M↓ = AD^ = DPI

Question 21

Equation for factors of AD

Answer 21

C + I + G + (X-M)

Question 22

Increase in immigration

Answer 22

= more people coming in to NZ = C^ = AD^ = DPI