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    Determinants of Aggregate Demand: by Samran and The Fudu

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    Nina Bahia
    This document defines aggregate demand and its key components: consumption, investment, government spending, exports and imports. It provides formulas for calculating aggregate demand and defines consumption, investment, and net exports. It then outlines several determinants that influence consumption and investment, such as interest rates, consumer confidence, wealth, availability of credit, income levels, inflation expectations, and life cycle and accelerator theories.

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    Determinants of Aggregate Demand: by Samran and The Fudu

    Uploaded by

    Nina Bahia
    11 views8 pages
    This document defines aggregate demand and its key components: consumption, investment, government spending, exports and imports. It provides formulas for calculating aggregate demand and defines consumption, investment, and net exports. It then outlines several determinants that influence consumption and investment, such as interest rates, consumer confidence, wealth, availability of credit, income levels, inflation expectations, and life cycle and accelerator theories.

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    This document defines aggregate demand and its key components: consumption, investment, government spending, exports and imports. It provides formulas for calculating aggregate demand and defines consumption, investment, and net exports. It then outlines several determinants that influence consumption and investment, such as interest rates, consumer confidence, wealth, availability of credit, income levels, inflation expectations, and life cycle and accelerator theories.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    11 views8 pages

    Determinants of Aggregate Demand: by Samran and The Fudu

    Uploaded by

    Nina Bahia
    This document defines aggregate demand and its key components: consumption, investment, government spending, exports and imports. It provides formulas for calculating aggregate demand and defines consumption, investment, and net exports. It then outlines several determinants that influence consumption and investment, such as interest rates, consumer confidence, wealth, availability of credit, income levels, inflation expectations, and life cycle and accelerator theories.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 8

    Determinants of Aggregate

    Demand
    By Samran and the Fudu.
    What is AD?
    • AD is the total planned spending on real
    output produced with in the economy.
    Formula of AD:
    AD = C + I + G + ( X – M )
    C = CONSUMPTION
    I = INVESTMENTS
    G= GOVERNMENT SPENDING
    X= EXPORTS
    M= IMPORTS
    ( X – M ) = NET EXPORT DEMAND
    Definitions
    • Consumption - total planned spending by households
    on real output produced with in the economy.

    • Investment - total planned spending by firms on real


    output produced within the economy. For example
    spending by firms on capital goods such as machines
    and raw materials.

    • Saving - income which is not spent on consumption.


    Determinants of Consumption:
    • Interest rates: reward for lending savings to somebody else.

    • Consumer confidence: when consumer optimism increases


    households generally spend more and save less and vice versa.

    • Wealth: is the stock of assets, or things that have value which


    people own.

    • Availability of credit: the rate of interest, controls bank lending


    and higher purchase controls affects consumption. If credit is
    cheap and is easily available, consumption increases.
    Determinants of Consumption:
    • Distribution of income: rich people save a greater proportion of
    income then the poor.

    • Future inflation: Uncertainty is caused by fears of rising inflation


    reducing consumption. However, this may have the opposite effect
    that households may consume more now if the prices continue to
    rise.

    • Level of Income: As income increases there is an increase in


    consumption but not as much.

    • Life Cycle Theory of Consumption.


    Determinants of Investment:
    • Replacement Investment: Maintaining the size of existing capital
    stock by replacing worn-out capital.

    • Net Investment: Adds to the capital stock therefore increasing the


    productive potential.

    • Investment in fixed capital: New factories and social capital such as


    roads.

    • Inventory Investment: Stocks of raw materials or variable capital.

    • Accelerator Theory of Investment.


    The End.

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