Ch 14 - Aggregate Demand

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17 Terms

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Aggregate demand
________: total spending on goods and services in a time period at a given price level.
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Consumption
________ is the total spending by consumers on domestic goods and services.
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real output
AD shows the relationship between average price level and ________.
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Business expectations
________: interest rates fall, consumers will have more disposable income.
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Formula of aggregate demand
AD = C + I + G + (X-M)
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aggregate demand shows
the  relationship between average price level and real output 
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Consumption is
* More volatile and least sustainable 
* Changes in income: as income rises people have to spend more 
* Changes in interest rate: more incentive to save and consume less (borrowing increases, decrease in consumption)
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**Investment**
firms investing into capital equipment machinery and premises 
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Investments are
Rate of interest (amount firms pay to borrow money) 
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Business expectations
interest rates fall, consumers will have more disposable income 
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Accelerator effect
reaction of investment to the rate of change of income
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Monetary policy
* Decrease in either AD will fall (growth will fall)
* Increase in either AD will increase
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Monetary policy
a set of actions to control a nation's overall money supply and achieve economic growth.
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Aggregate demand
total spending on goods and services in a time period at a given price level
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Expectations
consumers expect prices to rise in the future they will increase their consumption if they expect prices to fall later
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Investment
firms investing into capital equipment machinery and premises
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Accelerator effect
reaction of investment to the rate of change of income