Economics - Variations in economic activity

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

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

Short run aggregate supply definition

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

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

Factors that shift long term aggregate supply

• Changes in the quality and quantity of factors of production

• technological advances

• efficiency improvements

• changes in institutes