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Aggregate Demand

Aggregate Demand

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Powerpoint covering AD

Text of Aggregate Demand

  • 1. Aggregate Demand

2. ComponentsThe sum of all total planned expenditure in an economy at a general given price level per period C = Consumption I = Investment G = Government Spending X-M = Net Exports 3. Consumption This is spending by households on good andservices to meet its wants. E.g. Food and Clothes or TV Service Influences Disposable Income, the more consumers havetypically the higher AD Distribution of Income, an even distribution causes agreater rise in AD Availability of Credit, is credit is cheap then ADrises, if not AD falls 4. Investment Spending by Businesses on capital goods e.g.Factories. Influences Changes in income, as incomes rise, people demandmore so businesses invest to cope with demand Rate of Interest, a lower rate will stimulateinvestment as the cost of borrowing is low Profit Level, if profits are expected to be high Government Policy, lower corporation tax etc 5. Government Spending Spending by Government Main areas are Social Security, Health,Education and Defence Influences Public Opinion State of the Economy Market Failures 6. Net Exports This is total exports (X) minus total imports (M) Influences on Net Exports Domestic Income, if incomes are high we tend tosuck 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 againstanother then it will encourage exports 7. AD on GraphsNotes 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 AScurve 8. Shifts of the Curve If any component changes AD it will cause a shift. Should the change be an increase the curve shiftsto the right, if it is a decrease it shifts to the left