Lesson 13 - Components of aggregate demand

Question 1

What is the formula for GDP?

Answer 1

C + I + G + X - M

Question 2

What is aggregate demand?

Answer 2

The total level of planned real expenditure on the goods and services produced within a country

Question 3

What are the components of aggregate demand?

Answer 3

Household expenditure on goods and services ( C )
Investment spending ( I )
Government spending ( G )
Exports of goods and services ( X )
Minus imports of goods and services ( M )

Question 4

On an Aggregate Demand Diagram, what does general price level mean?

Answer 4

The average of current prices across the entire goods and services produced in the economy

Question 5

What is the definition of real GDP?

Answer 5

The value of economic output adjusted for inflation

Question 6

The AD curve shows that if the general price level increases, what will happen to the amount of real GDP in the economy?

Answer 6

It reduces the amount of real GDP in the economy

Question 7

The AD curve slopes down as a higher price level leads to falling real incomes, explain this?

Answer 7

As the price level rises the real value of income falls and consumers are less able to buy what they need.

Question 8

The AD curve slopes down