Aggregate Demand

• Aggregate demand


  The total demand for a county's goods and services at a given price level and in a given time period
• AD Formula

  AD= C + I + G + (X - M)
• Causes of movement along AD curve

  Change in any component of AD e.g

  • consumption
  • investment
  • government spending
  • net exports
• What is (X - M)

  Net exports
• SPICE


  Strong Pound Imports means Cheaper Exports
• a fall in general price level causes an expansion of AD
• a rise in general price level causes a contraction of AD
• Determinants of Consumption 


  • levels of real disposable income
  • interest rates
  • consumer confidence (job prospects, level of unemployment)
  • asset prices
  • household debt
• Determinants of Saving


  • level of real disposable income
  • interest rates
  • consumer confidence (what they expect)
  • trust in financial institutions
  • tax incentives
  • age of population (middle aged more likely to save)
• Determinants of Investment


  • interest rates (to borrow money)
  • business confidence (expected profit & demand)
  • corporation tax (retained profit)
  • spare capacity
  • level of competition
  • price of capital
  • accelorator
• Government spending 


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• Determinants of Net exports


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