4.3.5 Aggregate demand and the level of economic activity

• Consumption (C) refers to spending by households on goods and services
• Net exports (X-M) represent exports minus imports in the trade balance.


  True
• Consumer confidence is a key factor affecting consumption
• What role do exchange rates play in net exports (X-M)?

  Affect domestic prices
• Disposable income is a key factor affecting consumption
• Trade policies can influence net exports (X-M) in aggregate demand.


  True
• Match each component of aggregate demand with its key factors:

  Consumption (C) ↔️ Disposable income, consumer confidence, interest rates, wealth

  Investment (I) ↔️ Business confidence, interest rates, expectations of future demand, technological changes

  Government Spending (G) ↔️ Government policy decisions, budget deficits/surpluses, economic conditions

  Net Exports (X-M) ↔️ Exchange rates, relative prices of domestic and foreign goods, income levels in trading partner countries, trade policies
• Trade policies influence net exports
• Match each component of aggregate demand with its description:

  Consumption (C) ↔️ Spending by households on goods and services

  Investment (I) ↔️ Spending by businesses on capital goods

  Government Spending (G) ↔️ Spending by the government on public goods and services

  Net Exports (X-M) ↔️ Exports minus imports, representing the trade balance
• Net exports (X-M) is the trade balance, calculated as exports minus imports
• Income levels in trading partner countries influence net exports
• What does aggregate supply (AS) represent?

  Total goods firms supply
• SRAS is affected by changes in costs, wages, and commodity prices
• Where does equilibrium occur in the AD-AS model?

  AD equals AS
• Equilibrium in the AD-AS model means there is no pressure for prices or output to change.

  True
• Match each component of aggregate demand with its description:

  Investment (I) ↔️ Spending by businesses on capital goods

  Government Spending (G) ↔️ Spending by the government on public goods and services

  Net Exports (X-M) ↔️ Exports minus imports, representing the trade balance
• Exchange rates affect net exports
• Understanding the factors influencing AD is crucial for predicting economic changes.


  True
• Match the component of AD with its description:

  Consumption ↔️ Spending by households

  Investment ↔️ Spending by businesses

  Government Spending ↔️ Spending on public goods

  Net Exports ↔️ Exports minus imports
• Business confidence is a key factor affecting investment
• Trade policies are a key factor affecting net exports
• The AD-AS model shows how aggregate demand and aggregate supply determine equilibrium.


  True
• Aggregate supply represents the total quantity firms are willing and able to supply.

  True
• Match the curve with its description:

  Aggregate Demand ↔️ Total demand for goods and services

  Aggregate Supply ↔️ Total quantity firms supply
• An increase in consumption leads to a higher price level and higher output
• Changes in the components of AD can shift the AD curve and affect the equilibrium price level and output
• What is aggregate demand (AD)?

  Total demand in economy
• What does investment (I) represent in AD?

  Business spending on capital
• Match the AD component with its description:

  Consumption (C) ↔️ Household spending on goods and services

  Investment (I) ↔️ Business spending on capital goods

  Government Spending (G) ↔️ Public spending on goods and services

  Net Exports (X-M) ↔️ Exports minus imports
• Government policy decisions can influence government spending (G) in AD.

  True
• Steps in analyzing the impact of changes in AD:

  1️⃣ Identify the change in AD

  2️⃣ Determine the affected components

  3️⃣ Analyze the key factors

  4️⃣ Predict the impact on output
• What are some factors affecting investment (I)?

  Business confidence, interest rates
• What are the four main components of aggregate demand (AD)?

  Consumption, investment, government spending, net exports
• Consumer confidence is a key factor affecting consumption
• Aggregate demand (AD) is the total demand for all goods and services in an economy.


  True
• Consumption (C) is defined as spending by households on goods and services
• Business confidence is a key factor affecting investment (I).


  True
• Interest rates are a key factor affecting both consumption and investment
• Match each type of aggregate supply with its description:

  Short-Run Aggregate Supply (SRAS) ↔️ Total quantity supplied when input prices are fixed

  Long-Run Aggregate Supply (LRAS) ↔️ Total quantity supplied at full employment
• Technological advances can shift the LRAS to the right.


  True