Macroeconomics 1.2 Aggregate Demand

Question 1

Aggregate demand

Answer 1

The ability and willingness of all economic agents to spend in the economy.

Question 2

Consumption (C)

Answer 2

Spending by households on goods and services

Question 3

Investment (I)

Answer 3

Spending by firms on goods and services to be used in the production of other goods and services.

Question 4

Government expenditure (G)

Answer 4

Spending by the government on good and services

Question 5

Net exports (X-M)

Answer 5

Exports minus imports

Question 6

Exports (X)

Answer 6

Goods and services that firms sell overseas

Question 7

Imports (M)

Answer 7

Goods and services that households and firms buy from overseas.

Question 8

AD=C+I+G+(X-M)

Answer 8

Aggregate demand= Consumption+ Investement+ Government expenditure+(exports-imports)

Question 9

GDP

Answer 9

Gross domestic product (measurement of output)

Question 10

GDP

Answer 10

Total value of all the goods and service produced within the UK economy

Question 11

GDP and price

Answer 11

Inverse relationship- higher GDP, lower price level.

Question 12

Factors affecting consumption

Answer 12

Income, taxes, price level, social security payments, interest rates, expectations, wealth, availability of credit.

Question 13

Consumables

Answer 13

Goods which consumers consume e.g. food, drink

Question 14

Consumer durables

Answer 14

Goods which consumers buy which last for a longer period of time e.g. washing machine

Question 15

Permanent income levels

Answer 15

Where household consumption decisions are based on expected income levels over the next 5 or 10 years (Friedman)

Question 16

Lifetime income decisions

Answer 16

Where consumer decisions are based on household expected income over a life time. (Modigliani)

Question 17

Marginal Propensity to Consume

Answer 17

The proportion of an income that a household chooses to spend