Aggregate Demand Flashcards
What is aggregate demand?
Total amount of real output that is goods purchased at each price level. (Price level of all goods and services in the market) CPI (CONSUMER ORICE INDEX, is used to measure the price level of all goods.
What happens if any one of the AD curve changes C+I+G+(X-M) ?
Aggregate demand will also change
What shifts changes household spending?
Household spending changes due to a rise in household incomes, which increases C and so AD will also increase.
Changes in income taxes will also change household spending.
What affects the Investment by firms?
Business confidence.
If a business decides that the economy is not going to do very well in the future, they will delay their investments, thus Investments will fall and so will AD.
What affects Government expenditure on goods and services?
Govt decisions are determined by government. They may decide to increase expenditure on things such as teachers salaries, or buildings thereafter increase G, thus will cause AD to rise.
What affects export receipts?
Changes in overseas income.
Lower incomes in other countries may cause them to spend and buy less. X falls so AD falls.
What affects imports?
If NZ income fall we buy less, M falls causing a rise in AD.
X>M = AD increase
X
