2.2 Aggregate demand (AD)

Question 1

2.2.1 A)
What is aggregate demand

Answer 1

total demand for goods/servies within an economy

Question 2

2.2.1 A)
What does an increase in AD mean for the econmy

Answer 2

^ economic growth, ad measures how much economic agents spend, provides a measurement of economic growth

Question 3

2.2.1 A)
Whats an economic agent

Answer 3

household , goverment , busniess

Question 4

2.2.1 A)
What are the components of AD

Answer 4

AD = C + I + G + (X-M)
C = consumption
I = investment
G = goverment spending
(X-M) = net trade , exports - import

Question 5

2.2.1 B)
What is the most important component of AD
and the other percentails

Answer 5

Consumption / comsumer spending - makes up 60%
G 25% , I 15% , nt 1%

Question 6

2.2.1 C)
What is the AD curve properties, why ?

Answer 6

Downwards sloping,
- because of wealth affect, decrease in price levels means consumers think they are wealthier as pp increases (assuming wage stays the same) they buy more increasing real GDP

-increase exports revenue & competion - decrease in privce level makes exports cheaper = ^ reveue ^ real gdp

-lower intrest rates. decrease in price level / inflation, ^ consumption and investment = ^ gdp

Question 7

2.2.1 D ) movements / shifts in AD

Answer 7

movement = as price decreases real gdp rises , change in price level = movement
change in value of a component of ad causes a shift.

Question 8

2.2.2 A) Whats disposable income
its infuecnce on c

Answer 8

Disposable income is the income that an individual receives after paying all of their indirect
taxes.
As consumers have more income they are likely to increase their
spending. This increases consumption within an economy and therefore AD increases.

Question 9

2.2.2 B) relationship between savings and consumption

Answer 9

When consumers save more, they usually spend less (and vice versa). The marginal
propensity to consume shows how much of a consumers extra income they spend and how
much they save (change in consumption/change in income).

Question 10

2.2.2 c)
What are the factors affecting consumption

Answer 10

Consumption confidence, income tax, advaliability of credit, population, intrest rate, expectation of future prices, employment/ income, wealth affect

Question 11

2.2.3 A)
Define investment

Answer 11

The spending of money on capital goods by firms in order to increase productive possibility

Question 12

2.2.3 A)
Net investment vs gross investment

Answer 12

Net investment takes into account deprecitation of capital

Question 13

2.2.3 B)
factors that Influence investment

Answer 13

Rate of economic growth ^ growth = ^dd, ^ money in capital ^profit
Busniess confidence ^ investment
Keynes - strong ecomic growth more risks are taken
Demand for export - ^dd ^investment
Intrest rates v rates ^ loans , less paid back
Goverment copeate tax
Spare capacity ^ sc ^dd can be handled > no need for ^ investment

Question 14

2.2.5 A)
main influence of net trade

Answer 14

real income, exhange rate, state of world economy, degree of protectionism, non price factors