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90948
Aggregate Demand
Description
Mind Map on Aggregate Demand, created by cdsmith123 on 15/05/2013.
Mind Map by
cdsmith123
, updated more than 1 year ago
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Created by
cdsmith123
over 11 years ago
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Resource summary
Aggregate Demand
comprises total planned spending on the real output that the economy produces
AD = C + I + G + (X - M)
Consumption + investment + government spending + net exports (exports - imports)
households = consumption
firms = investment
government spending = government
net export = overseas market respectively
1. Consumption + (savings) - determinants.
Interest rates
high interest = reward savers - consumption falls
level of income
higher income - higher consumption
expected future income
saving usually is followed by dissaving
wealth
household wealth rises - consumption rises
confidence
confidence increases - spend more save less
2. Investment - total planned spending by firms on capital goods - determinants.
rate of interest
cost of borrowing - low interest = invest more
business confidence
investment increases as confidence grows
technical progress
machinery eventually becomes obsolete - firms invest in new machinery
accelerator
number that links the change in output to the extra capital needed to produce the additional output
3. Government sector (source of AD + leakage from circular flow)
budget surplus
net leakage
budget deficit
injecting spending +demand into economy
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