4.2.3 The determinants of aggregate demand

• Lower interest rates encourage investment spending.


  True
• Technological advancements improve productivity or create new opportunities
• Match the factor with its impact on investment spending:

  Interest Rates ↔️ Lower rates increase investment

  Business Confidence ↔️ Optimism encourages investment

  Technological Advancements ↔️ Improve productivity or create new opportunities
• Expansionary fiscal policies increase government spending.


  True
• Steps following increased government spending

  1️⃣ AD curve shifts right

  2️⃣ Output increases

  3️⃣ Employment rises

  4️⃣ Inflation may occur

  5️⃣ Circular flow of income enhances
• What does Aggregate Demand (AD) refer to in economics?

  Total demand for goods and services
• Changes in the determinants of Aggregate Demand will shift the AD
• What does the 'C' in Aggregate Demand represent?

  Consumption
• Order the factors affecting Consumer Spending based on their impact:

  1️⃣ Higher disposable income

  2️⃣ Greater net worth

  3️⃣ Positive consumer expectations

  4️⃣ Lower borrowing costs
• What is Investment Spending in economics?

  Demand for capital goods
• What does Government Spending in Aggregate Demand refer to?

  Demand for public goods
• Lower interest rates encourage investment spending by making it cheaper for businesses to borrow money.


  True
• How do technological advancements affect investment spending?

  Increase productivity or opportunities
• Expansionary fiscal policies directly raise aggregate demand by increasing government spending.


  True
• Arrange the key determinants of Aggregate Demand (AD) in order:

  1️⃣ Consumption

  2️⃣ Investment

  3️⃣ Government Spending

  4️⃣ Net Exports
• What does consumption (C) in AD represent?

  Household demand
• What do net exports (X - M) in AD represent?

  Foreign demand minus domestic demand
• Consumer spending is a significant portion of Aggregate Demand.
• Positive consumer confidence leads to increased consumer spending.


  True
• The circular flow of income amplifies the effects of higher consumer spending, leading to more investment and economic growth.
• What is the effect of higher disposable income on consumer spending?

  Increases
• Positive consumer expectations boost spending.

  True
• The circular flow of income amplifies the effects of higher consumer spending
• Match the determinant of Aggregate Demand with its description:

  Consumption (C) ↔️ Demand from households for consumer goods and services

  Investment (I) ↔️ Demand from businesses for capital goods

  Government Spending (G) ↔️ Demand from the government for public goods and services

  Net Exports (X - M) ↔️ Demand from foreign countries for domestic goods minus domestic demand for foreign goods
• The four key components of Aggregate Demand represent the total demand for final goods and services in an economy.

  True
• Why is Consumer Spending a significant determinant of Aggregate Demand?

  Influences economic activity significantly
• The circular flow of income amplifies the effects of changes in consumer spending.
• Increased Investment Spending enhances the circular flow of income by creating more revenue for businesses.


  True
• What are the key factors that determine investment spending?

  Interest rates, business confidence
• Optimistic expectations about future economic conditions increase business confidence.
• What is government spending a crucial component of?

  Aggregate Demand
• Governments may increase spending during recessions to stimulate the economy through the circular flow of income.
• Changes in the determinants of AD can shift the AD curve and affect the overall level of economic activity.

  True
• Investment (I) in AD refers to the demand from businesses for capital goods.
• The four components of AD are consumption, investment, government spending, and net exports.


  True
• How does higher disposable income affect consumer spending?

  Increases purchasing power
• What is the effect of lower interest rates on consumer spending?

  Stimulates borrowing and consumption
• What is the role of investment spending in the economy?

  Drives economic growth
• Greater net worth encourages consumer spending
• How do lower interest rates affect consumer spending?

  Increase it