AD

Question 1

What factors affect C

Answer 1

Real disposable income
Wealth (wealth effect - more confident, more access to borrowing)
Consumer confidence and expectations
Rate of interest

Question 2

What is the accelerator effect

Answer 2

Increase in rate of change of rGDP incentivises firms to invest more into better quality and quantity of capital

Question 3

Why does AD slope downwards

Answer 3

Real balance effect (when PL falls, purchasing power up, real income up)
Net export effect (when PL falls, our goods are more price competitive)
Interest rate effect (PL up, more demand for borrowing, IRs up, C and I down)

Question 4

What factors affect investment

Answer 4

Interest rates
Business confidence
(Substitutability of FOP)