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Macroeconomics (Aggregate Demand (Aggregate Demand Curve (shows the…

- - - - C= Consumption Spending
        
        Factors affecting
        
        Tax rates
        
        Credit
        
        Wage increases
        
        Interest rates
        
        Incomes –short term and expected income over lifetime
        
        Wealth
        
        Shares
        
        Savings
        
        Property
        
        Bonds
      - G = Government Spending
        
        Education
        
        Foreign Aid
        
        Social Welfare
        
        Regions
        
        Health
        
        Industry
        
        Defence
        
        Law and Order
      - (X-M) = difference between spending on imports and receipts from exports (Balance of Payments)
        
        Export Earnings (Positive)
        
        Goods and services sold abroad –for example represents a flow of funds into the Malaysia (raises AD)
      - I = Investment Spending
        
        Spending on
        
        Machinery
        
        Equipment
        
        Buildings
        
        Infrastructure
        
        Influenced by:
        
        Interest rates
        
        Expectations of future sales
        
        Expected rates of return
        
        Expectations of future inflation rates
  - - - In AD quantity is measured by the Real Gross Domestic Product (Real GDP)
        
        adjusted for inflation instead of the quantity of a particular good
      - Note also it is not based Nominal Gross Domestic Product
        
        price based on current price
  - - - shows what happens to aggregate output (Real GDP or income) when the price level (P) assuming no changes in government
        changes, assuming no changes in government spending (G), net taxes (T), or the monetary policy variables (Ms)
      - is a curve that shows the negative relationship between aggregate output (income) and the price level.
    - - Why does it slope down from left to right
        
        High demand for money cause rise in interest rates
        
        Any increase in interest rates will raise the cost of borrowin
        
        Investment will fall
        
        International competitiveness will decrease
        
        exports fall, imports rise
        
        Consumption spending will fall
        
        Demand push inflation leads to high demand for money
    - - Anything (other than price!) that causes C, I, G, or NX to increase will shift the AD curve to the right
        
        I = Investment spending increases when
        
        Business confidence rises, prompting firms to invest more for the future
        
        G = Government spending increases when
        
        Government spending increases
        
        C= Consumption spending increases when
        
        There is an increase in consumer confidence, leading to more current consumption and less current savings
        
        Taxes are cut leaving consumers with more income to spend
        
        NX = Balance of payments increases when
        
        There is increased preference for domestically produced goods.
        
        An increase in the money supply will cause AD to shift right
        
        Interest rates are lower, so C and I rise.
- - - - In the short run, the aggregate supply curve (the price/output response curve) has a positiv slope.
  - - - Public policy
        
        tax cuts
        
        deregulation
        
        supply-side policies
      - Good weather
      - Lower costs
        
        lower input prices
        
        lower wage rates
      - Economic growth
        
        more labor
        
        technological change
        
        more capital
    - - Public policy
        
        waste and inefficiency over-regulation
      - Bad weather
      - Stagnation
        
        capital deterioration
      - natural disasters
      - Higher costs
        
        higher input prices
        
        higher wage rates
      - destruction from wars