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.