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Aggregate demand (Causes of shifts (Consumption spending (C) (The total…
Aggregate demand
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Negative slope?
Wealth effect
PL :arrow_up: = value of wealth :arrow_down: = people feel poorer = spending on output :arrow_down: = UPWARD movement along the AD curve
Interest rate effect
PL :arrow_up: = consumers and firms need more money for transactions = demand for money :arrow_up: = interest rates :arrow_up: = cost of borrowing :arrow_up: = consumer and firm borrowing :arrow_down: due to less borrowing = an UPWARD movement along the AD curve
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Causes of shifts
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Business investments (I)
The addition of capital stock to the economy = all g's man made and used to produce other g's and s's.
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Government spending (G)
All spending by the gov, at different levels (federal, municipal...) on different g's and s's (healthcare, defense, education)
Political priorities change - spending on healthcare, education, defense etc.
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Net exports (X-M)
Difference between revenues received from selling g's and s's abroad and expenditures on buying g's and s's abroad
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Thus, if the PL increases there is an upward movement
If the PL decreases there is a downward movement