3.1 Aggregate Demand (AD)

    Cards (22)

    • The equation for Aggregate Demand is AD = C + I + G + NX
    • Match the component of AD with its definition:
      Consumption (C) ↔️ Household spending on goods and services
      Investment (I) ↔️ Business spending on capital goods
      Government Spending (G) ↔️ Government expenditures on goods and services
      Net Exports (NX) ↔️ Exports minus Imports
    • Arrange the factors that shift the AD curve based on their effect:
      1️⃣ Lower interest rates
      2️⃣ Higher disposable income
      3️⃣ Increased business confidence
      4️⃣ Depreciation of domestic currency
      5️⃣ Higher foreign income
    • A shift in the Aggregate Demand curve occurs due to changes in the factors that influence its components
    • Aggregate Demand (AD) represents the total demand for goods and services in an economy at different price levels
    • Net Exports (NX) are calculated as exports minus imports
    • A depreciation of the domestic currency makes exports cheaper, increasing net exports and shifting the AD curve to the right.

      True
    • What does Aggregate Demand (AD) represent in an economy?
      Total demand for goods
    • Aggregate Demand is solely influenced by household spending.
      False
    • A decrease in interest rates leads to higher investment
    • What causes movement along the Aggregate Demand curve?
      Changes in price level
    • Why is it crucial to distinguish between movement along the AD curve and a shift in the AD curve?
      To understand changes in demand
    • Consumer confidence is a factor that influences consumption, which in turn affects the AD curve.
      True
    • Lower interest rates can lead to higher investment and consumption, shifting the AD curve to the right
    • What are two effects of changes in Aggregate Demand (AD) on the economy?
      Inflation and unemployment
    • Why is understanding Aggregate Demand crucial for macroeconomic analysis?
      Predicts inflation and unemployment
    • What factors influence consumption in Aggregate Demand?
      Consumer confidence, income
    • An increase in government spending shifts the AD curve to the right.
      True
    • Describe the two ways the Aggregate Demand (AD) curve can change.
      1️⃣ Movement along the AD curve: Changes in the price level cause changes in the quantity demanded along the existing curve.
      2️⃣ Shift in the AD curve: Changes in factors influencing AD components (C, I, G, NX) cause the entire curve to shift left or right.
    • Match the component of Aggregate Demand (AD) with its definition.
      Consumption (C) ↔️ Household spending on goods and services
      Investment (I) ↔️ Business spending on capital goods
      Government Spending (G) ↔️ Government expenditures on goods and services
      Net Exports (NX) ↔️ Exports minus Imports
    • What is the equation for Aggregate Demand (AD)?
      AD = C + I + G + NX
    • List the three reasons behind the downward slope of the AD curve.
      1️⃣ Wealth Effect: Lower price levels increase the real value of wealth, leading to higher consumer spending.
      2️⃣ Interest Rate Effect: Lower price levels reduce the demand for money, lowering interest rates and boosting investment and consumption.
      3️⃣ Foreign Trade Effect: Lower price levels make domestic goods more competitive, increasing exports and decreasing imports.
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