14 Aggregate Demand

14 Aggregate Demand

1. The total spending on good and services in a period of time at a given price level.

2. C+I+G+X-M

   • Consumption
     • 1. Income 2.Interest rates 3.Wealth 4.Consumer confidence 5.Household indebtedness
   • Investment
     • 1.Interest rate 2.National income 3.Technology 4.Business confidence
   • Government Spending
     • 1.Subsidy 2.Correct market failure 3.Government Policy
   • Exports
     • 1.Foreign income 2.Exchange rate 3.Relative inflation 4.Trade policy
   • Import
     • 1.National income 2.Exchange rate 3.Relative inflation 4.Trade policy

3. Demand-side Policies

   • Fiscal Policy
     • A set of government policies relating to its spending and taxation rates
       • Expansionary
         • Lower income taxes to increase disposable income
         • Lower corporate taxes to increase investment
         • Increase government spending
       • Contractionary
         • Increase income tax
         • Increase corporate tax
         • Decrease government spending
   • Monetary Policy
     • A set of official policies governing the supply of money in the economy and the level of interest rates in an economy
       • Expansionary
         • Decrease interest rates
         • Increase the supply of money
       • Contractionary
         • Increase interest rates
         • Decrease the supply of money