Aggregate Demmand Flashcards
What is Microeconomics concerned with?
individual economic decisions
What is Macroeconomics concerned with?
concerned with the aggregate affect of individual economic decisions
What is an aggregate formed of?
formed of separate units collected into a WHOLE
what is demand?
the quantity of a commodity or a service that people are willing and able to buy at a certain price
what is aggregate demand?
Aggregate demand is all expenditures for the entire economy added together, or the sum of all demand in an economy. (all individuals demanding all goods and services)
Equation for AD (with definitions for each letter)
AD= C+I+G+(X-M)
C- consumption I- Investment G- Government Expenditure X- Exports M- Imports
What is consumer expenditure? (c)
Consumer expenditure is the spending by households made on goods and services e.g petrol, shopping or a new fridge
What are durable purchases and give an example of one?
Purchases that last a long time e.g cars, cookers, TV
What are non durable purchases and give an example?
purchases that only last a short period of time and are used up e.g food and drink
What is Investment? (I)
spending by firms on investment goods
Where may investment first be required?
May be required to replace worn out or failing machinery, equipment or buildings e.g new furniture
Where may investment be required after replacing worn out goods?
investment may be undertaken to purchase new machinery, equipment, or buildings in order to increase productive capacity
e.g adding a new extension
What is government spending?
spending on state provided goods and services such as schools and hospitals
What does government spending include?
- payments to workers in state sector
- spending by government on investment goods like new roads or new school buildings
What does government spending not include?
Welfare payments e.g benefits
