What are the components of aggregate demand?
C+I+G+(X-M) c = consumption i = investment g = government spending x = exports m = imports
What is consumption?
The amount that consumers wish to spend at various price levels rather than save
What are the determinate on consumer spending?
- Interest rates
- consumer confidence
- wealth effect
What is gross investment?
Total amount of investment before any account is taken of depreciation of assets
What is net investment?
Takes into account fall in value of capital assets.
What are the influences on investment?
- rate of economic growth
- business expectations and confidence
- Keynes and animal spirits
- demand for exports
- interest rates
- access to credit
- influence of government and regulations
What are animal spirits?
Forces that make markets move in large booms and busts, as people buy and sell impulsively rather than calmly, using purely rational behaviour - keynes
What are the main influences on government expenditure?
- trade cycle
- national debt
- fiscal policy
What is fiscal policy?
The deliberate manipulation of government spending and taxation in order to influence the level of AD in the economy.
What are Keynesians and Classical economists views on fiscal policy?
Keynesians see it as a way to prevent AD from collapsing in a recession.
Classical economists view it as overspending by the government which has the similar effect to printing more money - its inflationary
What are the main influences on net trade?
- Real income
- exchange rates
- state of world economy
- degree of protectionism
- non-price factors
