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Flashcards in Aggregate Demand - Macro Deck (6):

Aggregate Demand definition

Total spending in an economy; sum of all market demand curves;

Consumption, investment, government, net exports


Consumption spending

By individuals on goods and services (not housing - investment) - 70% spending in the US determined by PDI

Consumption function - relationship between disposable income and consumption spending (PDI) and (CS)

CS > PDI = Borrowing



Marginal Propensity to Consume (MPC)

Change in consumption spending as a percent of the change in disposable income; $1 additional disposable spent 90c = 90%

MPC=MPS (save) reciprocal


Investment Spending

Spending on capital items; PPE, residential - 15% spending in US;

Interest rate, demographics, consumer confidence, consumer income and wealth, etc...

Overtime interest rates become the most significant factor


Government Spending

Purchase of goods and services by all levels of gov. Excludes transfer payments (social security) - spending typically impacts taxes

Use of government spending to impact aggregate demand = discretionary fiscal policy


Imports and Exports

Net exports = exports - imports

Exports>imports = increases in aggregate demand

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