Notes

• What is Aggregate Demand (AD)?

  Total demand for goods and services

  
• What is the formula for Aggregate Demand?

  AD = C + I + G + (X - M)
• What does C represent in the Aggregate Demand formula?

  Consumption / Consumer Expenditure

  
• What does I represent in the Aggregate Demand formula?

  Investment
• What does G represent in the Aggregate Demand formula?

  Government Expenditure
• What does X represent in the Aggregate Demand formula?

  Exports
• What does M represent in the Aggregate Demand formula?

  Imports
• How is Net Trade calculated?

  Net Trade = Exports - Imports
• What is the largest component of Aggregate Demand?

  Consumption
• What is the most volatile component of Aggregate Demand?

  Investment
• What does Government Expenditure include?

  Spending on goods and services
• What are transfer payments?

  Money transferred without goods or services
• What is Job Seeker's Allowance?

  A benefit for unemployed individuals
• What is a Trade Surplus?

  Exports exceed imports
• What is a Trade Deficit?

  Imports exceed exports
• What is Real GDP?

  Output measured in constant prices

  
• What does GDP stand for?

  Gross Domestic Product
• What does an increase in wealth lead to?

  Increased consumption
• How does income affect consumption?

  Larger income increases disposable income
• What happens to consumption if interest rates fall?

  Consumption increases
• How do consumer expectations influence spending?

  Optimism leads to increased spending
• What is the effect of decreased unemployment on consumption?

  Increased consumption due to more income
• How do taxes affect disposable income?

  Lower taxes increase disposable income
• What is the impact of high inflation on spending?

  May lead to increased current spending
• How does technology influence consumption?

  Encourages buying the latest products
• What is the definition of saving?

  Real disposable income minus spending
• What is the effect of government policy on savings?

  Tax-free schemes encourage more savings
• How does age structure affect savings?

  Young save little, elderly may dissave
• What happens to savings when real disposable income increases?

  May increase savings proportionally
• How do interest rates affect savings?

  Higher rates generally increase savings
• What is the impact of consumer confidence on savings?

  Uncertainty leads to increased savings
• What are saving schemes?

  Contractual agreements to save regularly
• What is the Accelerator Effect?

  Increased demand leads to larger investment
• How does capacity utilization affect investment?

  Higher utilization encourages more investment
• What role does technology play in investment decisions?

  New technology can lead to more investment
• How do expectations about the future influence investment?

  Optimism leads to increased investment
• What effect do subsidies have on investment?

  Increase profits and encourage investment
• How do profits influence investment?

  High profits encourage more investment
• What is the relationship between real disposable income and investment?

  Higher income leads to increased investment
• How do interest rates affect investment decisions?

  Higher rates increase investment costs