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Aggregate Demand - Coggle Diagram
Aggregate Demand
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Consumer expectations
Expectations about future price rises and the general availability of goods will influence consumers' decisions to spend or save their income.
If consumers expect a rise in their incomes or in inflation, or if they anticipate future shortages of goods, then they tend to spend more and save less in the short term.
if consumers expect that their incomes might fall, that prices might fall or that goods and services might become more available in the future, then they are inclined to spend less and save more.
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Business expectations
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If economic growth is expected to increase, businesses will be more inclined to invest in capital equipment because a higher level of economic activity should improve the returns on investment.
Inflation leads to uncertainty about future prices and future costs of production, and this is likely to lead to reduced investment in productive capital equipment.
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Influences on investment
The main factors influencing business investment are the cost of capital equipment and business expectations.
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