Aggregate demand curve
4 components of AD
Definition
The total spending on an economy's goods and services at a given price level in a given time period
The AD Curve
The wealth effect
A rise in the price level will reduce the demand of goods and services. Consumer purchasing power will then fall
The international effect
A rise in the price level will reduce for net exports as exports will become less price competitive while imports will become more price competitive
The interest rate effect
A rise in the price level will increase demand for money to pay the higher price. This will increase the interest rate. A higher interest rate usually results in a reduction in consumption and investment.
Investment
Spending money by private sector on private goods
Increases when
Cut in corporate tax
Rise in businesses' confidence
Advanced in technology
Decreases when
Increase in interest rate
Government spending
It covers the government spending on goods and services
Increases when
Government want to stimulate economic activities
Government want to win political support
Decreases when
Government want to reduce national debt
Income or corporate tax are reduced
Net export
Difference between exports and imports
Increase when
Rise in the quality of domestic products
Depreciation of a country's currency
Increase in income abroad
Decrease when
Decrease in the quality of domestic products
Decrease in income abroad
Increase in currency exhange rate
Consumption
Known as consumer expenditure and consists of spending by households on goods and services
Increase when
Rise in consumers' confidence
Increase in population
Cuts in direct and indirect taxes
Increase in wealth
Increase in money supply
Decreases when
Increase in income tax
Increase in interest rate
Decrease in consumer' confidence
Decrease in population