LS3 - Aggregate Demand

Question 1

Aggregate Demand

Answer 1

The total amount of goods and services demanded in the economy at a given time and price level.

Question 2

Aggregate Supply

Answer 2

The total planned output of goods and services in an economy at a given time and price level.

Question 3

AD Equation

Answer 3

AD = C + I + G + (X-M)

Question 4

AD Curve

Answer 4

Slopes downwards let tt right because of inverse relationship between AD and price level.

Question 5

Reasons For Inverse Relationship

Answer 5

Wealth Effect
Interest Rate Effect
Trade Effect

Question 6

Wealth Effect

Answer 6

If the price is higher, purchasing power of wealth is lower and less goods/services are demanded and vice versa.

Question 7

Interest Rate Effect

Answer 7

A low price level usually means lower interest rates which encourages high levels of consumption and investment and vice versa.

Question 8

Trade Effect

Answer 8

A lower domestic price level means domestic goods and services are more competitive and therefore imports decrease and exports increase.

Question 9

Factors Affecting Consumption

Answer 9

Increase in GDP 
Increase In All Income Tax
Consumer Confidence 
Interest Rates 
Increase In Benefit Payments 
Decrease In Personal Tax Allowance