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Aggregate Demand - Coggle Diagram
Aggregate Demand
AD Curve shift
Shifts for Investment
Increase
Technological advances
Cut in corporate tax
Rise in business confidence
Decrease
Increase in corporate tax
Increase in interest rate (due to contractionary policy)
Shifts for Government Spending
Increase
Want to win political support
Want to stimulate economic activity
Decrease
Want to reduce national debt
Income/corporate tax are reduced
Shifts for Consumption
Increase
Cut in income tax
Increase in wealth
Rise in consumer confidence
Rise in money supply
Increase in population
Decrease
Decrease in consumer confidence
Increase in income tax
Decrease in MPC
Increase in interest rate
Decrease in population
Shifts for Net Exports
Increase
Currency devaluation
Rise in quality of domestic products and also people's taste for it
Increase in income abroad
Decrease
Increase in currency exchange rate
Decrease in quality of domestic product and people's taste for it
Decrease in income abroad
What is AD?
Total Demand for all goods and services in an economy at a given time.
Total level of planned real expenditure on goods and services at a certain amount of time
AD = C + I + G + (X-M)
AD = Consumption + Investment + Government Spending + Export - Import
Components for AD
Consumption
Household spending on Goods and Services
Investment
Spending by private firms on capital goods
Gross fixed capital investment spending
Value of change in inventories
Government Spending
Spending on public goods, subsidies, infrastructures, etc
Net exports
Exports subtracted by imports
Movement along the AD curve
The Wealth Effect
Rise in price level reduce the amount of goods and services that people can buy. Purchasing power also decreases.
The Interest Rate Effect
Rise in price level increase demand for money to pay for higher price, which will result in higher interest rate. Higher interest rate decreases investment and consumption
The International Effect
Rise in price level reduce demand for net exports.