What is aggregate demand?
A schedule or curve showing the amounts of real output (Real GDP) that buyers collectively desire to purchase in an economy at each possible price level
Do prices levels and the amount of real GDP that’s demanded have an inverse or non-inverse relationship?
Price levels and the amount of real GDP that’s demanded have an inverse relationship
When price levels rise, the quantity of real GDP demanded decreases
When price levels fall, the quantity of real GDP demanded increases
What does a downward sloping aggregate demand curve indicate between the price level and the amount of real output purchased?
It indicates an inverse relationship
What are the 3 real GDP effects for an inverse relationship between price level and the amount of real output purchased?
1) The real balances effect
2) The interest effect
3) The foreign purchases effect
What does a rightward shift of an aggregate demand curve represent?
It represents an increase in aggregate demand
What does a leftward shift in an aggregate demand curve represent?
A decrease in aggregate demand
What are fundamental determinants of aggregate demand?
1) consumer spending
2) Expected returns
3) government spending increases or decreases
4) National income abroad
5) Exchange rates
What are 4 factors that affect consumer spending?
1) Consumer wealth
2) Household borrowing
3) Consumer expectations
4) Personal taxes
What are 4 factors that affect expected returns?
1) Expectations about future business conditions
2) Technology
3) Degree of excess capacity
4) Business taxes
How does an increase in government spending affect aggregate demand if interest rates and tax rates do not change?
Aggregate demand increases
How does a decrease in government spending affect aggregate demand if interest rates and tax rates do not change?
Aggregate demand decreases
How does national income abroad affect aggregate GDP positively or negatively?
Rising national income abroad encourages foreigners to buy more products
Falling national income abroad discourages foreigners from buying more products
How do exchange rates affect aggregate demand?
If there are changes in dollars for exchange rates, the prices of foreign currencies in terms of the Canadian dollar will change and that may affect Canadian net exports, therefore affecting aggregate demand
What are 3 fundamental things that affect net export spending?
1) National income abroad
2) Exchange rates
3) Dollar depreciation
