The components of Aggregate Demand

Question 1

define aggregate demand

Answer 1

the total demand or spending in an economy over a given period of time

Question 2

what is the equation of aggregate demand [AD]

Answer 2

Consumption [C] plus Investment [I] plus Government spending [G] plus [exports[E] - Imports [M]

Question 3

define consumption [consumer spending/ expenditure]

Answer 3

the total amount spent by households on goods/ services

Question 4

an increase in consumption will lead to an increase or decrease in AD

Answer 4

increase

Question 5

A reduction in consumption will lead to an increase or decrease in AD

Answer 5

decrease

Question 6

what is the largest component of aggregate demand

Answer 6

consumption

Question 7

consumption makes up of how much demand in the UK

Answer 7

65 percent

Question 8

when consumption is high are savings high or low

Answer 8

low

Question 9

when consumption is low are savings high or low

Answer 9

high

Question 10

what are the 6 factors affecting consumption and saving

Answer 10

Income , interest rates , consumer confidence , wealth effects , taxes , unemployment

Question 11

what is a disposable income

Answer 11

money left from your income after you pay your taxes

Question 12

as disposable income increases, what will happen to consumption

Answer 12

rise

Question 13

although an increase in disposable income will rise consumption, why is the rate at which consumption rises lower than the rise in income

Answer 13

households tend to save more aswell

Question 14

what are interest rates

Answer 14

the cost of borrowing money and reward for saving

Question 15

Do higher interest rates increase or decrease consumer spending

Answer 15

decrease

Question 16

why do high interest rates decrease consumer spending [ 2 reasons]

Answer 16

consumers save more as they’re less likely to borrow money as it’s more expensive / consumers may also have less money to spend if interest rates on existing loans, mortgages increase.

Question 17

when consumers feel more confident about the economy/ their own financial situation, do they spend more or save more

Answer 17

spend more/ save less

Question 18

what part of the economic cycle would consumer confidence be low

Answer 18

recession

Question 19

during recession what may consumers be worried about

Answer 19

losing their jobs

Question 20

what is direct tax

Answer 20

tax taken based on income

Question 21

would an increase direct tax lead to an increase or decrease in disposable income/ and because of this will people spend more or less

Answer 21

decrease/ spend less

Question 22

what is indirect tax

Answer 22

taxes placed on goods and services, which do not consider income

Question 23

name an example of an indirect tax

Answer 23

VAT [ Value - added tax]

Question 24

would an increase in indirect tax increase or decrease consumption and why

Answer 24

decrease consumption as cost of spending increases

Question 25

when unemployment rises, do consumers spend more or save more

Answer 25

spend less/ save more

Question 26

when unemployment rises, why do people save more

Answer 26

because people still in employment will be worried about losing their jobs.

Question 27

a fall in unemployment means what which increases consumer spending [ 2 things]

Answer 27

1-people have money to spend 2- consumers are less worried about losing their jobs

Question 28

are savings made by households or firms

Answer 28

households

Question 29

give an example of saving

Answer 29

putting money into a savings bank account each month

Question 30

are investments made by households or firms

Answer 30

firms

Question 31

give an example of investment

Answer 31

money paid to build a new office