2.2.1 Aggregate Demand

Question 1

What is aggregate demand (AD)?

Answer 1

It is the total demand for all goods/services in an economy at any given average price level.

Question 2

How is aggregate demand (AD) calculated?

Answer 2

Using the expenditure approach.
AD = Consumption (C) + Investment (I) + Government spending (G) + (Exports - Imports) (X-M)
AD = C + I + G + (X-M)

Question 3

If AD has increased, what has occurred?

Answer 3

Economic growth.

Question 4

What is consumption?

Answer 4

The total spending on goods/services by consumers (households) in an economy.

Question 5

What is investment?

Answer 5

The total spending on capital goods by firms.

Question 6

What is government spending?

Answer 6

The total spending by the government in the economy.

Question 7

What are net exports?

Answer 7

The difference between the revenue gained from selling goods/services abroad and the expenditure on goods/services from abroad.

Question 8

What is ceteris paribus?

Answer 8

A shorthand indication of the effect one economic variable has on another, provided all other variables stay the same.