Changes in aggregate demandSyllabus: Distinguish between the microeconomic concept of demand for a product and the macroeconomic concept of aggregate demand.
You remember in Microeconomics you studied what shifts the position of the Demand Curve (PoPzYTEP): the Non-Price Demand Determinants in a Market?
In the economy as whole the components (determinants) of Aggregate Demand are C+I+G+X-M and any change in any of these variables shifts the position of the AD curve. See animation below for further explanation:
N.B. A change in the Price Level is represented by a movement along the AD curve.
Syllabus: Describe consumption, investment, government spending and net exports as
the components of aggregate demand.
See bottom of interaction for full (if repetitive) statements on determinants (components) of AD.
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N.B. A change in the price level will simply be represented by a movement along the AD curve. (Repetition is the Mother of all learning)
Syllabus: Explain how the AD curve can be shifted by changes in consumption (C) due to factors including:
- changes in consumer confidence,
- interest rates,
- personal income taxes (and hence disposable income) and
- level of household indebtedness.
Syllabus: Explain how the AD curve can be shifted by changes in investment due to factors including:
- interest rates,
- business confidence,
- business taxes and
- the level of corporate indebtedness.
Syllabus: Explain how the AD curve can be shifted by changes in government spending due to
- political and
- economic priorities.
- the income of trading partners,
- exchange rates and
- changes in the level of protectionism.