Scribd
Upload
53 views10 pages

Understanding Aggregate Demand in Economics

Aggregate demand refers to the total demand for an economy's products at a specific price level and time period, influenced by consumer spending, investment, government spending, and net exports. Key determinants include disposable income, interest rates, and government policy. The aggregate demand curve can shift due to changes in consumer confidence, business investment, and international competitiveness.

Uploaded by

kianhshah9109
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
53 views10 pages

Understanding Aggregate Demand in Economics

Aggregate demand refers to the total demand for an economy's products at a specific price level and time period, influenced by consumer spending, investment, government spending, and net exports. Key determinants include disposable income, interest rates, and government policy. The aggregate demand curve can shift due to changes in consumer confidence, business investment, and international competitiveness.

Uploaded by

kianhshah9109
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Aggregate

Demand
Macroeconomics Concept
What’s aggregate demand?

It refers to the total demand for an economy’s products at a given price


level in a given time period.

Determinants of aggregate demand


● Consumer spending
● Investment
● Government spending
● Net exports

Thus, AD= C+I+G+(X-M)


What’s Consumer Spending

It refers to the expenditure by households on goods & services.

Determinants of Consumer Spending


● Disposable income
● Distribution of income
● Interest rate
● Availability of credit
● Future speculation
● Wealth
What’s Investment?

It refers to the spending by private firms on capital goods.

Determinants of Investment?
● Consumer demand patterns
● Interest rates
● Technology
● Cost of capital
● Expectations
● Government policy
What’s Government Spending?

It refers to the spending by local and national governments on goods & services.

Determinants of Government Spending?


● Policy
● Tax revenue
● Demographic changes
What’s Net Export?

It refers to the value of exports less imports.

Determinants of Net Exports?


● Domestic GDP
● Foreign GDP
● International competitiveness
● Exchange rate
The Aggregate Demand
Curve
Analyses of AD curve contracting
01 02
Wealth effect International effect
Rise in price level will reduce amount Rise in price level reduces demand
of products people’s wealth can buy. for net exports as the economy
The purchasing power of savings held will become less competitive with
in form of bank accounts & other their exports.
financial assets will fall.
03
Interest rate effect
Rise in price level will increase
demand for loans to pay for higher
prices. In turn, increasing ROI
leading to lower consumption &
investment.
Shifts in AD curve
Causes for right shift in AD (increase):

● Consumer Spending—rise in
confidence, cut in income tax,
increased wealth, greater money
supply, higher population

● Investment—rise in business
confidence, cut in corporate tax,
advances in tech

● Govt. Spending—to stimulate


economic activity, political motives

● Net Exports—fall in exchange rate,


rise in competitiveness of domestic
products, increased foreign incomes
THANK YOU FAM

You might also like