The Characteristics Of AD Flashcards
What is the aggregate demand equation ?
Consumption + Investment + Government Spending + (Exports - Imports)
Definition Of Consumption
The amount spent on consumer goods and services.
Definition Of Investment
The amount added to the capital stock of the economy to produce other goods.
Definition Of Government Spending
The amount of expenditure conducted independently by government institutions.
Definition Of Exports
The amount of domestic goods sold abroad.
Definition Of Imports
The amount of foreign goods being purchased domestically / in the UK.
Definition Of Ceteris Paribus
All other things being equal.
Why is the Aggregate Demand Curve downward sloping ? (3)
Wealth Effect On Consumption
Interest Rate Effect On Investment
International Trade Effect On Net Trade
Definition Of Wealth Effect On Consumption
Money goes further as prices go down which boosts consumer confidence.
Definition Of Interest Rate Effect On Investment
As prices go down, interest rates also go down meaning it’s cheaper for businesses to borrow.
Definition Of International Trade Effect On Net Trade
As prices fall, domestic products become relatively cheaper than international goods meaning consumers will prefer to purchase them.
Which part of the AD curve is most significant to the UK?
Consumption.
Definition Of Aggregate Demand
The total spending on goods and services in an economy over a period of time at a given price level.
