Ch 14 - Aggregate Demand

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Aggregate demand

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17 Terms

1

Aggregate demand

________: total spending on goods and services in a time period at a given price level.

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2

Consumption

________ is the total spending by consumers on domestic goods and services.

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3

real output

AD shows the relationship between average price level and ________.

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4

Business expectations

________: interest rates fall, consumers will have more disposable income.

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5

Formula of aggregate demand

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

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6

aggregate demand shows

the  relationship between average price level and real output

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7

Consumption is

  • More volatile and least sustainable

  • Changes in income: as income rises people have to spend more

  • Changes in interest rate: more incentive to save and consume less (borrowing increases, decrease in consumption)

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8

Investment

firms investing into capital equipment machinery and premises

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9

Investments are

Rate of interest (amount firms pay to borrow money)

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10

Business expectations

interest rates fall, consumers will have more disposable income

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11

Accelerator effect

reaction of investment to the rate of change of income

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12

Monetary policy

  • Decrease in either AD will fall (growth will fall)

  • Increase in either AD will increase

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13

Monetary policy

a set of actions to control a nation's overall money supply and achieve economic growth.

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14

Aggregate demand

total spending on goods and services in a time period at a given price level

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15

Expectations

consumers expect prices to rise in the future they will increase their consumption if they expect prices to fall later

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16

Investment

firms investing into capital equipment machinery and premises

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17

Accelerator effect

reaction of investment to the rate of change of income

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