aggregate demand
DESCRIPTION
Powerpoint covering ADTRANSCRIPT
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Aggregate Demand
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Components
• C = Consumption• I = Investment• G = Government Spending• X-M = Net Exports
𝑨𝑫=𝑪+𝑰+𝑮+(𝑿−𝑴)
The sum of all total planned expenditure in an economy at a general given price level per period
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Consumption
• This is spending by households on good and services to meet its wants.
• E.g. Food and Clothes or TV Service• Influences– Disposable Income, the more consumers have
typically the higher AD– Distribution of Income, an even distribution
causes a greater rise in AD– Availability of Credit, is credit is cheap then AD
rises, if not AD falls
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Investment
• Spending by Businesses on capital goods e.g. Factories.
• Influences– Changes in income, as incomes rise, people
demand more so businesses invest to cope with demand
– Rate of Interest, a lower rate will stimulate investment as the cost of borrowing is low
– Profit Level, if profits are expected to be high– Government Policy, lower corporation tax etc
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Government Spending
• Spending by Government • Main areas are Social Security, Health,
Education and Defence• Influences– Public Opinion– State of the Economy– Market Failures
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Net Exports
• This is total exports (X) minus total imports (M)
• Influences on Net Exports– Domestic Income, if incomes are high we tend
to suck in imports, which lowers AD– Foreign Income, if incomes in other countries
rise, they will suck in British Exports– Exchange Rates if the currency is weak against
another then it will encourage exports
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AD on Graphs
Notes on the Graph• X Axis is Real Output• Y Axis is Price Level• A movement along the D curve will be caused by a movement of
the AS curve
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Shifts of the Curve
• If any component changes AD it will cause a shift. • Should the change be an increase the curve shifts
to the right, if it is a decrease it shifts to the left