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Aggregate Demand (AD) - Coggle Diagram
Aggregate Demand (AD)
Components
Investment (I)
The spending on capital goods by private sector firms
Government Spending (G)
The government spending on G&S.
Consumption (C)
Consumer expenditure. Spending by households on G&S.
Net Exports (X - M)
Value of exported G&S subtracted by value of imported G&S.
exports (x), imports (m)
Factors Affecting the Components
Investment
+
Technological advancements
Increase in confidence
-
Increased corporation tax
Increase in interest rates
Gov't Spending
+
Gov't wants to stimulate economic activity
Gov't wants to gain political support
-
Gov't wants to reduce national debt
Decrease in taxes
Consumption
+
Rise in money supply
Increase in confidence
-
Increase in income tax
Decrease in wealth
Net Exports
+
Raise in foreign income
Currency depreciation
-
Decrease in demand of exported products
Currency apprecation
The rising and falling of AD
the International effect
A rise in price will cause demand for net exports to falter as the priding would be less competitive. Imports on the other hand will be more price competitive. (vice versa)
the Ineterest Rate effect
A rise in the price will cause the demand for money to rise as goods and services cost more. High interest rates would sway consumers away from purchasing more. (vice versa)
the Wealth effect
A rise in price will cause money purchasing power to fall. Hence, less goods and services can be bought. (vice versa)
a measurement of the total consumed goods and services at a given price level within a given time period.