Aggregate Demand

• What does Aggregate Demand (AD) represent?

  Total planned spending on goods and services
• Why are savings important for consumers?

  They smooth consumption during tough times
• What are the key roles of savings in the economy?

  • Smoothing consumption during tough times
  • Reducing debts
  • Providing retirement income
  • Funding investment and household borrowing
  • Supporting business survival during recessions
• What does APC stand for in economics?

  Average Propensity to Consume
• What does MPC stand for in economics?

  Marginal Propensity to Consume
• If household income is £565 and consumption is £418, what is the APC?

  $0.74$
• If household income increases to £647 and consumption increases to £468, what is the MPC?

  $0.77$
• What is investment in economic terms?

  Purchase of capital goods for production
• What is gross investment?

  Total spending on new capital goods
• What is net investment?

  Gross investment adjusted for capital consumption
• What does a positive net investment indicate?

  Capital stock of a country will increase
• What factors influence investment decisions?

  • Rate of economic growth
  • Current profit levels
  • Business expectations and confidence
  • Capacity utilization
  • Corporation tax
  • Interest rates
  • Access to credit
  • Advances in technology
  • Price of capital equipment
  • Government regulations
• What do "animal spirits" refer to in economics?

  Psychological factors driving investor actions
• What is government spending?

  Spending by the public sector on services
• What is current government spending used for?

  Providing public services like wages
• What is capital government spending?

  Spending on new public infrastructure
• What are transfer payments?

  Benefits with no output attached
• What influences government spending levels?

  Level of state intervention and economic activity
• How is net exports calculated?

  Value of exports minus value of imports
• What are the components of Aggregate Demand (AD)?

  • Consumer expenditure (C)
  • Investment (I)
  • Government Spending (G)
  • Net Exports (NX)
• What influences export revenue and import expenditure?

  Real disposable income and domestic price levels
• What is the net trade balance?

  Value of exports minus value of imports
• What are external shocks to Aggregate Demand?

  • Unexpected events causing changes in demand
  • Affecting output and employment
• What are the four sectors of the economy?

  Households, Firms, Government, International
• What is the largest component of Aggregate Demand?

  Consumer expenditure
• What influences household spending?

  • Real disposable income
  • Consumer confidence
  • Interest rates
  • Unemployment
  • Wealth
• What does Average Propensity to Consume (APC) measure?

  Proportion of income spent rather than saved
• What does Marginal Propensity to Consume (MPC) measure?

  Proportion of income increase spent on consumption
• What are the formulas for APC and MPC?

  • APC = $C / Y$ (Consumption ÷ Income)
  • MPC = $ΔC / ΔY$ (Change in Consumption ÷ Change in Income)
• What is saving in economic terms?

  Disposable income not spent
• What factors affect household saving?

  • Real interest rate
  • Consumer confidence
  • Price expectations
  • Taxation of savings
  • Trust in savings institutions