The characteristics of Aggregate Demand

Question 1

Which way does the Aggregate Demand curve slope?

Answer 1

Downwards

Question 2

What does the Aggregate Demand curve show?

Answer 2

Relationship between the price level and equilibrium output in the economy

Question 3

What does a movement along the Aggregate Demand curve show?

Answer 3

Shows how real output will change if there is a change in the price level.

Question 4

What is a shift in the Aggregate Demand curve caused by?

Answer 4

Change in any other relevant variable apart from price level

Question 5

What does Aggregate mean in economics?

Answer 5

Means a ‘total’ or ‘added up’ amount

Question 6

Define Aggregate Demand.

Answer 6

Is the total of all demands or expenditures in the economy at any given price.

Question 7

What four components is made out of National Expenditure?

Answer 7

• Consumption
• Investment
• Government Spending
• Exports minus Imports

Question 8

National Expenditure - What does Consumption mean?

Answer 8

• This is spending by households on goods and services

Question 9

National Expenditure - What is Investment?

Answer 9

Is spending by firms on investment goods (capital)

Question 10

National Expenditure - What is Government Spending?

Answer 10

Literally what the government spends its money on, like, Wages, Salaries and Government Spending on Investment goods

Question 11

National Expenditure - Exports Minus Imports?

Answer 11

When foreigners spend money on goods produced in the UK economy, however, households, firms and governments spend money on goods produced abroad.

Question 12

What is the AD Equation?

Answer 12

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

Question 13

What is Consumption influenced by?

Answer 13

The Rate of Interest in the economy

Question 14

What happens to consumption if the rate of interest rises?

Answer 14

Consumption falls

Question 15

What is the Wealth effect?

Answer 15

When a change in value of someone personal wealth influences their spending

Question 16

What does a STRONG pound mean?

Answer 16

Foreign firms will be able to compete more successfully in the UK economy.

Question 17

What causes a fall in UK exports?

Answer 17

• Increase in interest rates reduces consumption and investment
• A loss of international competitiveness because UK product prices are high

Question 18

What is the Average Propensity to Consume?

Answer 18

The proportion of total income that is spent

Question 19

How does New Technology lead to increased consumer spending?

Answer 19

People want to be up-to-date with the latest technology and so buy it.

Question 20

How does a Fall in Income tax lead to increased consumption?

Answer 20

Increases consumers disposable incomes so they can spend more.

Question 21

How can Investment be increased?

Answer 21

• Increase in confidence
• Fall in interest rates
• Increase in Company Profitability (firms have more retained profit to spend)
• A fall in taxes on profits (operation tax)

Question 22

What will a rise in Government spending do to the deficit?

Answer 22

Cause the deficit to get worse

Question 23

What factors effect the difference between exports and imports?

Answer 23

• Rise in the exchange rate is likely to lead to lower EXPORTS but higher IMPORTS (Balance of Payments gets worse reducing AD)

Question 24

Which way does the AD curve shift if AD is getting worse?

Answer 24

Shifts left

Question 25

Which way does the AD curve shift if AD is getting better?

Answer 25

Shifts RIGHT

Question 26

Does Aggregate Demand include Public (Government) Spending?

Answer 26

NO!!! Only Private Sector spending

Question 27

In 2013 how much was are Balance of Payments?

Answer 27

-2%