Aggregate demand

Question 1

What are the components of aggregate demand?

Answer 1

C+I+G+(X-M) 
c = consumption 
i = investment 
g = government spending
x = exports
m = imports

Question 2

What is consumption?

Answer 2

The amount that consumers wish to spend at various price levels rather than save

Question 3

What are the determinate on consumer spending?

Answer 3

1. Interest rates
2. consumer confidence
3. wealth effect

Question 4

What is gross investment?

Answer 4

Total amount of investment before any account is taken of depreciation of assets

Question 5

What is net investment?

Answer 5

Takes into account fall in value of capital assets.

Question 6

What are the influences on investment?

Answer 6

1. rate of economic growth
2. business expectations and confidence
3. Keynes and animal spirits
4. demand for exports
5. interest rates
6. access to credit
7. influence of government and regulations

Question 7

What are animal spirits?

Answer 7

Forces that make markets move in large booms and busts, as people buy and sell impulsively rather than calmly, using purely rational behaviour - keynes

Question 8

What are the main influences on government expenditure?

Answer 8

• trade cycle
• national debt
• fiscal policy

Question 9

What is fiscal policy?

Answer 9

The deliberate manipulation of government spending and taxation in order to influence the level of AD in the economy.

Question 10

What are Keynesians and Classical economists views on fiscal policy?

Answer 10

Keynesians see it as a way to prevent AD from collapsing in a recession.
Classical economists view it as overspending by the government which has the similar effect to printing more money - its inflationary

Question 11

What are the main influences on net trade?

Answer 11

1. Real income
2. exchange rates
3. state of world economy
4. degree of protectionism
5. non-price factors