aggregate demand

influences on consumer spending:

  1. interest rate

  • lowers interest rate - cheaper to borrow, reduces incentive to save

  • spending & investment increase

  • lowers the cost of debt e.g. mortgages

  • increase effective disposable income

  1. consumer confidence and expectations

  • high confidence: invest and spend more

  • expectation (fear unemployment/higher tax): less confident → save and spend less delaying huge purchases e.g. houses/cars

  1. capital investment

influences on investment:

  1. rate of economic growth

  • if growth is high: more revenue, more profits to invest

  1. business expectations and confidence

  • expect high return: invest more

  1. demand for exports

  • higher demand → firms invest more

  1. interest rate

  • investment increases as the interest rate falls