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Level 8

Aggregate Demand


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Aggregate Demand
The total spending on goods and services in a period of time at a given price
4 factors of aggregate demand
Consumer Consumption, Industry Investment, Government Spending, Net Imports and Exports
Consumption
Total Spending by consumers on domestic goods and services
Change in Consumption
Change in income, interest rates, wealth, or consumer confidence
Durable Goods
Goods that are used by consumers over a period of time
Investment
Addition of capital stock to the economy
Change in Investment
Interest rates, national income, technological change, business confidence
Reason for industry investment
Investment in industry is borrowed to increase quantity and quality of products in the future
Government spending
Government spends money on public goods and services
Change in Government spending
Firm subsidies (financial support), national policies, correction of market failure
Net exports
The goods and services that are bought and sold to foreigners
Change in net export
Foreign and domestic incomes, exchange rate between 2 countries, changes in trade policies (tariffs), relative inflation
2 Government demand side policies
Fiscal Policy, Monetary Policy
Fiscal Policy
Encourage greater aggregate demand during a recession
Monetary Policy
Let the economy's self correction mechanism get it out of a recession
Level 9