25/01/16
Lesson 1: AD
Learning Objective: I can distinguish between demand and aggregate demand
DA: Briefly explain why a recession can be seen as a positive period for an economy.
Aggregate demand = Total spending on goods and services in a period of time at a given price level.
DA: Briefly explain why a recession can be seen as a positive period for an economy.
Aggregate demand = Total spending on goods and services in a period of time at a given price level.
The AD diagram illustrates the inverse relationship between the average price level and total real output demanded. AD = C + I + G + (X-M)
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Changes in the components of AD
1. Consumption:
- Changes in income - As incomes rise people have more money to spend on goods/services.
- Changes in interest rates - The price of borrowed money.
- Changes in wealth - Made up of the assets that people own. Change in house prices and value of stocks.
- Changes in expectations/consumer confidence - Measured by a "consumer confidence index".
- Household indebtedness - Connected to interest rates.
Activity:
2. Investment:
- Interest rates
- Changes in the level of national income
- Technological change - Investment to keep up with advances in tech.
- Expectations/business confidence
Activity:
3. Government spending
- Subsidies and money spent to correct market failure.
- Changes in foreign income
- Exchange rates
- Trade policies
- Inflation
Activity: