Compmoments of AD Flashcards
(21 cards)
What is aggregate demand?
Total spending over a given time period time
What is the formula for AD?
Consumption+Investment+Gov spending + Exports-imports
What is consumption?
Total amount spend by households on goods and services for the purpose of consuming.
What is the biggest component of AD?
Consumption
65%
What are the main factors that affect consumption and saving?
Income
Interest rates
Consumer confidence
Wealth effects
Taxes
Unemployment
What is the wealth effect?
Rise in household wealth will increase consumer confidence
What is investment?
The money spent by firms on assets which they use to produce goods or services
What is net investment?
Investment that increases productive capacity
What is gross investment?
Total investment
What percentage of AD is investment?
15%
What are factors affecting investment?
Risk
Interest rates and access to credit
Government regulation and incentives
Business confidence
Technical advances
What is government spending?
The total expenditure of public funds by a government on various goods, services and transfer payments
What part of spending is not included in AD?
Benefits and pensions
Why is gov spending important?
A large component of AD
What is a budget deficit?
Government spending is greater than revenue
What is budget surplus?
Government revenue greater than spending
What are exports?
Goods and services sold to foreign countries. They are also a inflow of money
What are imports?
Outflow of money
Goods and services brought from another currency
What are factors affecting imports and exports?
Exchange rate
Changes in state of world economy
Degree of protectionism
Non price factors
How does exchange rate affect imports and exports?
Strong exchange rate
Cheap imports - Bad exports
Cheap exchange rate
Expensive import - good exports
What happens to a country as they develop ?
Imports rose
Exports decline
