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Aggregate demand and supply (Definition (Consumer confidence (How…
Aggregate demand and supply
A.Demand
Total demand for a nation's goods and services in a period of time at a range of price levels
Downwards sloping curve
The average price level shows the way in which prices in the economy change over time. If the APL rises, this indicates inflation. Consumers, producers, and government are not happy demanding goods and services at a high price. If the APL falls there will be higher AD for real output in the economy.
Interest rates
Increase price level -> More money needed to be borrowed to buy -> Increase in interests rates -> less borrowing -> less consumption -> Can cause upward movement along the AD curve
International trade effect
Increase price level in a country while the foreign country stays the same-> exports become expensive -> less demanded. Import becomes less expensive -> more demanded abroad. Decrease in Xn -> downward movement in A.D
Wealth Effect
Price level increase -> Real wealth value decreases -> People feel worse off -> Cut back on spending
Change in A.Demand curve
Along the curve
Caused by change in APL
To shift
Affecting
C
Income
More income more spending
Interest rate
higher cause to saving rather than borrowing. Lower cause borrowing to be cheaper therefore more spending
Debt level
High, decrease, low, increase
Tax
Disposable income decreases -> spending drop (less money avaialbe to buy)
Wealth
Wealthier
Tend to spend more money
Consumer confidence
More confidence in the future that they can improve the income
SPend more money
Xn
Exchange rates
Level of trade protection
National income abroad
International relationship
I
Interest rates
High
Produce less
Low
Produce more
Reason: High cost of borrowing if interest increase, more profitable if put money into saving rather than borrowing
Business confidence
Expect demand to increase -> put more money in-> more profitable
Technology advancement
To keep up with the advance in tech and remain competitive (gain customers) -> put money into investments
Coporate taxes
Increase cause profit after tax fall
Less incentive to invest
Legislation
Change in national income
Increase in consumption
put pressure onto the existing capacity
Put money into investments
Company debt
More debt in the past
Business incline to pay for those than investing into new things
G
Change in political priorities
Depends on priority that government spend
Correcting market failure
Economic priorities
Monetary policies
Fiscal policy
Definition
Consumer confidence
How optimistic consumers are about their future income or their future welfare
Business confidence
How well do businesses perceive that the economy will do in the future, and what their profits/revenue will be doing
Fiscal policy
Government spending + income to achieve government objectives
House wealth
The whole household wealth total assets minus liability
A.Supply :
Determinants
Technology
Business taxes
Government regulation
Wage rates
Resource cost
New Clasical
When there is a shift in AD
Change in equilibrium price level
Keynesian
Long run
Price of resources are flexible
Short run
Upward slope due to inflexible resource price and increase in output price
facts
NZ corporate tax: 28%
NZ Minimum Wage: $15.25
