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Aggregate Demand
the total demand for all finished goods and services in an economy at any price level at any given point in time.
Formula for aggregate demand
AD = C + I + G + (X-M)
Formula for real GDP
Real GDP = Nominal GDP/CPI x 100
Define Nominal GDP
considers market value of these produces, influenced by inflation
Define real GDP
adjusts the prices of these goods and services for inflation, more accurate indication of an economy’s production
If the AD curve shifts to the right
new equilibrium price and quantity both increased, expansion along the AS curve
Define multiplier effect
how an autonomous change in AD sees a greater than proportional change in national income
Autonomous factors include
consumption, investment, gov. spending, net exports
Define marginal propensity to consume
proportion of any increase in income spent on consumption
Define marginal propensity to save
proportion of any increase in income that is saved
Formula for calculating multiplier
MPC + MPS = 1
Formula for MPC
consumption/income
Formula for MPS
savings/income
Formula for finding the multiplier
k = 1/1-MPC or k= 1/MPS
Define demand-side economic growth
economic growth occurring due to an increase in AD
What is consumption affected by
disposable income, consumer expectations, and interest rates
With higher income tax…
less disposable income and consumption, lower economic growth
What do interest rates directly effect?
cost of borrowing, return on savings
What is investment affected by
business profits, expectations, and interest rates
What was the primary economic object for the Aus Gov in 2021
high employment
How does gov sector stimulate economy
decrease tax, increase expenditure
How do gov sector contract economy
increase tax decrease expenditure
Net Exports when economy is weak
import less, export more, increase economic grwoth.
Net exports when economy is strong
more imports, less exports, decreased economic growth
A strong domestic exchange rate…
decreases exports, increases imports, decrease in economic growth
A weaker exchange rate…
increase exports, decrease imports, increase economic growth
Causes of supply-side growth
quantity of new resources, improvements in technology, and microeconomic reform.
Benefits of economic growth
increased living standards, gov budget, innovation, and employment
Disadvantages of economic growth
Income inequality, inflation, environment sustainability, and external stability
