Aggregate Demand

Aggregate Demand

comprises total planned spending on the real output that the economy produces
1. AD = C + I + G + (X - M)
  1. Consumption + investment + government spending + net exports (exports - imports)
    1. households = consumption
    2. firms = investment
    3. government spending = government
    4. net export = overseas market respectively
1. Consumption + (savings) - determinants.
1. Interest rates
  1. high interest = reward savers - consumption falls
2. level of income
  1. higher income - higher consumption
3. expected future income
  1. saving usually is followed by dissaving
4. wealth
  1. household wealth rises - consumption rises
5. confidence
  1. confidence increases - spend more save less
2. Investment - total planned spending by firms on capital goods - determinants.
1. rate of interest
  1. cost of borrowing - low interest = invest more
2. business confidence
  1. investment increases as confidence grows
3. technical progress
  1. machinery eventually becomes obsolete - firms invest in new machinery
4. accelerator
  1. number that links the change in output to the extra capital needed to produce the additional output
3. Government sector (source of AD + leakage from circular flow)
1. budget surplus
  1. net leakage
2. budget deficit
  1. injecting spending +demand into economy

Resource summary

	Created by cdsmith123 almost 11 years ago