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Theme 2: The UK economy – performance and policies
2.2 Aggregate demand (AD)
2.2.1 The characteristics of AD
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Cards (32)
What is the definition of aggregate demand (AD)?
Total demand for goods
Aggregate Demand (AD) is the total demand for goods and services in an economy at a given price level and time
period
Consumption includes both durable and
non-durable
goods.
What does investment in aggregate demand refer to?
Business spending on capital
Government Spending (G) includes expenditures on public goods and services such as education and
healthcare
Net exports
are calculated as exports minus imports.
What is the formula for aggregate demand?
AD = C + I + G + (X – M)</latex>
Match the component of AD with its definition:
Consumption (C) ↔️ Household spending on goods
Investment (I) ↔️ Business spending on capital
Government Spending (G) ↔️ Public sector expenditures
Net Exports (X – M) ↔️ Exports minus imports
What does consumption in aggregate demand represent?
Household spending on goods
Positive net exports increase aggregate demand, while negative net exports
decrease
The formula for aggregate demand is AD = C + I + G + (X –
M
).
Which component of AD includes public sector spending on infrastructure?
Government Spending (G)
Household spending on goods and services is referred to as
consumption
Exports add to aggregate demand, while
imports
subtract from it.
What is the mathematical expression for aggregate demand?
A
D
=
AD =
A
D
=
C
+
C +
C
+
I
+
I +
I
+
G
+
G +
G
+
(
X
–
M
)
(X – M)
(
X
–
M
)
Positive net exports increase aggregate demand, while negative net exports
decrease
What is the definition of net exports in the context of aggregate demand?
Exports minus imports
The aggregate demand formula is expressed as
AD
= C + I + G + (X – M)
What type of spending does consumption refer to in aggregate demand?
Household spending
What type of spending does investment refer to in aggregate demand?
Business spending
Net exports increase
aggregate demand
if they are positive.
What is aggregate demand defined as?
Total demand for goods
Order the components of aggregate demand from most to least common:
1️⃣ Consumption
2️⃣ Investment
3️⃣ Government Spending
4️⃣ Net Exports
What are examples of government spending that contribute to aggregate demand?
Infrastructure, education, healthcare
What does the aggregate demand curve illustrate?
Price level vs. quantity demanded
A movement along the AD curve is caused by a change in the
price
level.
What are factors that can shift the aggregate demand curve?
Consumer confidence, investment, government spending, net exports
A movement along the AD curve shifts the entire curve to the left or right.
False
What does higher consumer confidence do to the aggregate demand curve?
Shifts it to the right
What does increased investment spending do to the aggregate demand curve?
Shifts it to the right
What does higher government spending do to the aggregate demand curve?
Shifts it to the right
Higher net exports shift the
aggregate demand
curve to the right.