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3.2 Agregate Demand

Aggregate Demand (AD) refers to the total spending on goods and services in an economy over a period. The components of AD include consumption, investment, government spending, and net exports, each influenced by factors such as taxes, interest rates, and consumer confidence. Changes in these components can shift the AD curve, affecting overall economic activity.

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11 views15 pages

3.2 Agregate Demand

Aggregate Demand (AD) refers to the total spending on goods and services in an economy over a period. The components of AD include consumption, investment, government spending, and net exports, each influenced by factors such as taxes, interest rates, and consumer confidence. Changes in these components can shift the AD curve, affecting overall economic activity.

Uploaded by

martinespinosabalaguera
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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AGGREGATE

DEMAND
Here is where your chicken begins
KUD’S

Knowledge Understand Do
To know the How the AD curve To draw a AD/AS
components of AD shift in AD/AS diagram shifting the
diagram AD
What is AD?

Is the total spending on goods


and services in a period of time
on a given
Diferencess between D & AD

• Average Price Level vs Price (of one item)

• National Income / National Expenditure / Real


Output vs Quantity
What are the components of the AD?
01
02 03
Government
Consumption Investment
Total spending of consumers Addition to capital stock to
Spending
on goods and services the economy (by firms). 2 The amount of Gov.
(durable & Non-durable types: Spending depends on the
goods) • Replacement I. (mantein objectives and policies of
output) the government.
04 05
• Induced I. (Increase
output)
Exports * NO SAVINGSImports
Domestic goods that are Goods and services that are
bought by foreigners. bought from foreigner
producers.
What is the shape of
the AD curve?

C+G+I+(X-
M)
“This is a quote, words full of
wisdom that someone important
said and can make the reader get
inspired.”
—Someone Famous
What causes changes in consumption?
01
02 03
Income Taxes Interest Rates Wealth
Direct taxes – Paid on Durable goods are usually Assets that people owns.
Income. paid by money borrowed to Physical or
Less disposable Income. the bank (+ interests). Monetary/Financial. 2 options
Consumption falls. Price of borrowed money to increase:
04 increases. Consumption • Price of houses

Consumer
falls.
05
• Value of Stocks and Shares

Confidence/Expectations Level of Household


Indebtedness
If consumers are optimistic If IR are high, loans are more
about their economic future, difficult to pay so they will have
they are likely to spend more less money to spend in g/s.
Activity 1
What causes changes in investment?
Business Taxes
Interest Rates Higher Post-tax profits means
A decrease in IR will lead an less money to invest that
increase of borrowing money. provokes a fall in AD.
Investment will increase so AD. If
IR increases, savings will increase.
Level of Household
Indebtedness
Technology Business are willing and able to borrow
money affects investment. If IR are low,
Technological improvements more money will be borrowed by the
increase AD. business, increasing the investment.

Businesses Confidence/Expectations
If expectations about consumers’ demand will increase they will
want to be ready increasing the investment.
Activity 2
What causes changes in
Government Spending?

Subsidies

New Education Policy

New Health Policy


What causes changes in Net
Exports?
(X-M)
Level of Exports Level of Imports
• If foreign incomes rise. • If national income rises. Also more
• If country’s exchange rate becomes investment. Imports increase.
stronger, country’s exports becomes • If country’s exchange rate becomes
relatively more expensive to stronger, country's imports becomes
foreigners. relatively cheaper.
• If a country decides to adopt a policy • If a country decides to adopt a policy
of more liberalized (free) trade, may of more liberalized (free) trade, may
reduce tariffs so allows my country reduce tariffs so allows other
to export more to those countries. countries to export more to my
• Inflation among countries, so country.
country’s exports will be less • Inflation among countries, so
How the AD Activity 3
will shift?

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