Aggregate demand and aggregate supply (OCR A-Level Economics): Flashcards
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Aggregate demand
Aggregate demand
Total demand for goods & services in an economy
MPC
MPC
Proportion of additional income allocated to consumption
MPS
MPS
Proportion of additional income allocated to saving
Shape of AD curve
Shape of AD curve
Downward-sloping
Four components of AD
Four components of AD
Consumption, Investment, Gov spending, Net exports
Consumption (C)
Consumption (C)
Household expenditure on goods and services
Investment (I)
Investment (I)
Firm expenditure on capital goods
Government spending (G)
Government spending (G)
Government expenditure on goods and services
Net exports (X-M)
Net exports (X-M)
Value of exports minus value of imports
AD & price level relationship
AD & price level relationship
Inverse relationship
Wealth effect
Wealth effect
Lower prices increase real wealth, raising consumption
Interest rate effect
Interest rate effect
Lower prices reduce money demand & interest rates, boosting spending
International trade effect
International trade effect
Lower prices make domestic goods cheaper, raising exports
Cause of AD curve shifts
Cause of AD curve shifts
Changes in any AD component (C, I, G, X-M)
Rightward AD shift
Rightward AD shift
Increase in aggregate demand