Aggregate demand

The characteristics of AD

The total level of spending in an economy at a given price

• consumption:60%

• Investment: 15-25%

• Government spending: 18-20%

• Net exports: 5%

Consumption

Disposable income: money consumers have lefts after tax

• important factor in determining level of consumption

• Poorer people tend to have higher MPC

Other influences on consumer spending

• Interest rate

• Consumer confidence

• Wealth effect

• Distribution of income

• Taste and attitudes

Investment

Additional capital stock to the economy

Influence on investment

• Rate of economic growth

• Business expectations and confidence

• Demand for exports

• Interest rate

• Influence of government regulations

• Access to credit

• Retained profit

• Technological change

• Costs

Government spending

Influences on government spending

• The trade cycle

• Fiscal policy

• Age distribution

Net trade

Exports minus imports

Influence on net trade balance

• Real income

• Exchange rates

• State of world economy

• Degree of protectionism

• Non price factors

• Prices