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Flashcards in Aggregate Demand - Macro Deck (6):
1

Aggregate Demand definition

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

Consumption, investment, government, net exports

2

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

CS

3

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

4

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

5

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

6

Imports and Exports

Net exports = exports - imports

Exports>imports = increases in aggregate demand

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