U2 AOS 1 Lesson 3 - Factors impacting AD

Question 1

What is consumer confidence?

Answer 1

Consumer confidence is a measure of how optimistic or pessimistic consumers are regarding their expected financial situation and the overall economy.

Question 2

Fill in the blank: A rise in business confidence usually results in increased __________ and higher aggregate demand.

Answer 2

investment

Question 3

What effect do changes in exchange rates have on aggregate demand?

Answer 3

Changes in exchange rates can affect the price of imports and exports, influencing aggregate demand through changes in net exports.

Question 4

Multiple Choice: Which of the following factors would most likely decrease aggregate demand?

A) Increased consumer confidence
B) Decreased business investment
C) A rise in exports
D) Increased government spending

Answer 4

B) Decreased business investment

Question 5

What does a rightward shift in aggregate demand indicate?

Answer 5

An increase in the overall demand for goods and services in the economy.

Question 6

True or False: A rise in taxes can lead to a leftward shift in aggregate demand.

Answer 6

True

Question 7

Fill in the blank: An increase in government spending will typically cause aggregate demand to _______.

Answer 7

increase

Question 8

Which of the following factors can cause a shift in aggregate demand?
A) Changes in consumer wealth
B) Changes in technology
C) Changes in production costs

Answer 8

A) Changes in consumer wealth

Question 9

What is purchasing power?

Answer 9

Purchasing power is the amount of goods or services that can be bought with a unit of currency.

Question 10

Which of the following can increase government spending?
A) Tax cuts
B) Increased government revenue
C) Economic recession
D) Reduced public services

Answer 10

C) Economic recession

Question 11

What effect does a decrease in interest rates typically have on purchasing power?

Answer 11

It usually increases purchasing power by making borrowing cheaper.

Question 12

What is aggregate demand?

Answer 12

Aggregate demand is the total demand for goods and services within a particular market or economy at a given overall price level and in a given time period.

Question 13

True or False: An increase in aggregate demand leads to higher economic activity.

Answer 13

True

Question 14

Which of the following factors can cause a change in aggregate demand?

A) Consumer spending
B) Government policies
C) Investment levels
D) All of the above

Answer 14

d) All of the above

Question 15

Short Answer: How does a decrease in consumer confidence affect aggregate demand?

Answer 15

A decrease in consumer confidence typically leads to reduced consumer spending, which lowers aggregate demand.

Question 16

VCAA 2024 - Question 4

Which of the following is most likely to result in an increase to aggregate demand in the economy?

A. A decrease in labour market productivity
B. An increase in consumer confidence
C. An increase in the cash rate
D. A decrease in business confidence

Answer 16

B.

Increased consumer confidence → increased willingness to consume → increased C → increased AD

Question 17

List the aggregate demand factors:

Answer 17

• Disposable income
• Interest rates
• Consumer confidence
• Business confidence
• Exchange rates
• Rates of economic growth overseas

Question 18

How does a decrease in disposable income affect aggregate demand?

Answer 18

Decreased disposable income → decreased willingness and ability to consume goods and services → decreased private consumption expenditure (C) → decreased AD

Question 19

How does an increase in interest rates affect aggregate demand?

Answer 19

Increased interest rates → increased cost of borrowing and increased incentive to save → consumers less willing and able to consume and more likely to save → decreased private consumption expenditure (C) → decreased AD

Question 20

How does an appreciation (increase) in the AUD affect aggregate demand?

Answer 20

2 ways:

Increase in AUD → Australian goods and services become more expensive in foreign terms → decreased Australian international competitiveness → decreased exports (X) → decreased AD

Increase in AUD → foreign goods and services become cheaper in Australian terms → increased imports (M) → decreased AD

Question 21

How does a depreciation (decrease) in the AUD affect aggregate demand?

Answer 21

2 ways:

Decrease in AUD → Australian goods and services become cheaper in foreign terms → increased Australian international competitiveness → increased exports (X) → increased AD

Decrease in AUD → foreign goods and services become more expensive in Australian terms → decreased imports (M) → increased AD