What is the percentage for each component and what does it mean?
C-consumption: spending by households on goods and services 60%
I-investment:spending by firms on capital goods 15%
G-government spending: spending by government on services and infrastructure 25%
(X-M)- exports:spending by overseas agents on goods/services 1%- imports: spending by domestic agents on forging goods/services 1%
What is aggregated demand (AD)?
Total demand for goods and services in an economy at a given price level.
What does a AD curve show ?
shows the relationship between the overall price level in the economy and the quantity of real GDP demanded
GDP- total output of goods and services produced in a economy within a given time period
what are the three main reasons why AD curve is downward slopping ?
Wealth effect- when price level falls, the real value of money in consumers hands increase as they can buy more goods with the same amount of money- increases pur chancing power. Interest rate effect- lower price levels often lead to lower interest rates. This causes business/consumers to borrow more form banks. Exchange rate effect-as prices fall forgein buyers find domestic goods more affordable leading to increase in exports.
What does it mean if there’s a ADcurve shift ?
when there Is a change in a component of real GDP when there Is a change in a component of real GDP that is not due to a price level change
what does a outward shift of SD mean ?
a higher level demand at each price level. one or more of the components have changed.
