The aggregate demand depends on various variables, here referring to components of aggregate demand. The two main concepts that describe changes in the aggregate demand are expenditure and output.

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Rahul Ganji

Economics

Data Response Question, page 178

Define the following:

  • Aggregate demand: Aggregate demand can be simply defined as the total demand of goods and services in the economy at a given price and fixed time period. In other words, it is the sum of expenditure components.
  • Disposable income: The income left to an individual after taxes have been cut off, and the rest can be used to spend of luxuries.
  • Durable goods: goods that are used by consumers over a long period of time.
  • Investment: addition of capital stock to the economy.

Use a diagram to explain the change in the components of aggregate demand

The aggregate demand depends on various variables, here referring to components of aggregate demand. The two main concepts that describe changes in the aggregate demand are expenditure and output. Expenditure is further classified into consumption, investment, government and net exports. Again, going back to the definition, we can say that aggregate demand is: AD= C+I+G+(X – M)

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C =consumption

I=investment

G=government spending

(X – M)=net exports

The next part of this question shall examine the changes of the components of AD, particularly investment.

        As I mentioned earlier, investment can be mentioned as the addition of capital stock to the economy. There are 4 factors that cause a change in investment: interest rates, change in the level of national income, technological change and business confidence. This article talks about how taxes have affected growth and how businesses are reluctant to invest. This text refers to two main concepts of investment; they are changes in the level of national ...

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