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