Economics - Variations in economic activity

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Aggregate demand definition

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Aggregate demand definition

total demand for all goods/services in an economy

AD=. C + I + G + (x-m)

Axis:

y = Average price level,

x = GDP

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2

Non price determinants of aggregate demand

Consumption:

  • Consumer confidence

  • Interest rate. As base interest rates rise.. there is greater incentive to save so there is less consumption

  • wealth

  • income rates

  • debt

  • expectations of future price

Investment

  • Interest rates

  • Business confidence

  • New technology

  • Business taxes

  • Corporate debt

Government spending

  • Political priorities

  • Economic priorities

Net exports

  • Income of trading partners

  • Exchange rates

  • Trade policies

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3

Short run aggregate supply definition

Total supply of all goods/services provided within an economy at a specific price level

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4

Non price determinants of aggregate supply

  • Changes to costs of raw materials/energy: includes:wage rates, investment rates, govt regulation, exchange rates

  • Changes in indirect tax

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5

Factors that shift long term aggregate supply

  • Changes in the quality and quantity of factors of production

  • technological advances

  • efficiency improvements

  • changes in institutes

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