Th2.2: Components of AD

Question 1

Formula for AD

Answer 1

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

Question 2

What does C stand for?

Answer 2

consumption

Question 3

What does I stand for?

Answer 3

investment

Question 4

What does G stand for?

Answer 4

government spending

Question 5

What does X stand for?

Answer 5

exports

Question 6

What does M stand for?

Answer 6

imports

Question 7

What is consumption?

Answer 7

consumer spending on goods and services

Question 8

How much of AD is consumption?

Answer 8

60%

Question 9

What is investment?

Answer 9

spending by businesses on capital goods, such as new equipment and buildings

Question 10

How much of AD is investment?

Answer 10

15-20%

Question 11

What is most investment done by?

Answer 11

the private sector - around 75%

Question 12

What is government spending?

Answer 12

spending by the government on providing goods and services, generally public and merit goods, both on wages and salaries of public sector workers and investment goods like roads and schools

Question 13

How much of GDP is government spending?

Answer 13

18-20%

Question 14

What are net exports?

Answer 14

exports minus imports

Question 15

How much of AD is net exports?

Answer 15

around 5%