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Title: Aggregate Demand
Description: A simple and detailed document covering Aggregate Demand, how it works and affects the economy, and what factors affect it. Suitable for GCSE, A-Level and any other university or high school degrees. Enjoy!
Description: A simple and detailed document covering Aggregate Demand, how it works and affects the economy, and what factors affect it. Suitable for GCSE, A-Level and any other university or high school degrees. Enjoy!
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Aggregate Demand
Aggregate demand (AD) = total spending on goods and services
AD = C + I + G + (X-M)
IF the curve slopes downwards:
Lower prices→ Wealth effect
Lower prices→Cheaper exports
Lower prices→Expensive imports
The AD curve will shift right or left if there is
a change to any of these factors:
Consumption: includes:
Durables: ex
...
Capital investment:
-Spending in capital goods such as equipment
...
FACT: Capital investment spending in the UK accounts for between 16-20% of GDP
(75% from the private sector, 25% from the public sector)
Government spending:This is spending on state-provided goods and services
including public goods
...
M: Imports of goods and services
...
Why does the AD curve slope
downwards? →
Factors affecting consumer spending
-Real Disposable Income (income adjusted for inflation & after direct tax and benefits)
-Unemployment and job security (when unemployment falls C usually rises)
-Household wealth
-Animal spirits (state of confidence or pessimism)
-Market interest rates (they affect the incentive to save and the cost of borrowing)
Title: Aggregate Demand
Description: A simple and detailed document covering Aggregate Demand, how it works and affects the economy, and what factors affect it. Suitable for GCSE, A-Level and any other university or high school degrees. Enjoy!
Description: A simple and detailed document covering Aggregate Demand, how it works and affects the economy, and what factors affect it. Suitable for GCSE, A-Level and any other university or high school degrees. Enjoy!