agg demand¨

Aggregate demand	The total spending on goods and services in  a period of time at a given price level Consumption The total spending by consumers on domestic goods and services Durable and non durable Investment The addition of capital stock to the economy Replacement investmant Induced investment Government spending Depends on policies Net export Goods and servcices bought and sold by foriegners
Changes in the components of aggregate demand	Changes in income Changes in interest rates If interest rates change there is less borrowing and consumption will fall If interest rates fall people will borrow more Changes in wealth Made up of the assets peopkle own 2 main  factors for wealth A change in the housing market A change in the stocks and shares Changes in consumer confidence If people ar optimistic about the future they will spend more Household indeptness The extents to which households are willing and able to borrow money affect consumption. If interest rates are low and it is easy to borrow and spend increasing AD. If interest rates rise household will have to spend more to re-pay their loans and mortgages and spending will drop.
What causes changes in investment	Interest rates People will borrow money Changes in national income As national ncome rises more demand then more investments into new plants Tech changes Expextations Planning for the future
What causes changes in gov spending	Based on policy
What casuses changes in net export	What causes changes in Net Exports? 1 Changes in domestic national income- An increase in Y puts pressure to decrease 2 Changes in foreign income- When foreign incomes rise rightward preasrure is placed on AD because foreigners buy exports. 3 Relative currency values- If domestic currency has a high value leftward pressure is placed on AD because to foreigners goods/services seem expensive. 4 Trade policies Protectionist policies put leftward pressure on AD whereas free-trade policies place rightward pressure on AD. 5 Relative inflation rates among trading partners Hight inflation rates make goods seem expensive to foreigners.
Fiscal policy	Fiscal policy- the set of governments policies relating to its spending and taxation rate. Direct taxes-taxes on income Indirect taxes- taxes on goods and services Money supply= refers to the amount of money in circulation at a given period of time Interest rate= Base rate/discount rate/prime rate-the price charged to borrow money. The rate charged by the central bank to other banks Expansionary fiscal policy (Encourage consumption-shift AD right) Lower income tax to increase disposable income Lower corporate taxes to encourage investment Increase government spending to improve or increase public services Contractionary fiscal policy (Discourage consumption-shift AD left) Raise corporate taxes Decrease government spending
Monetarty polic	The set of official policies governing the supply of money in the economy and the level of interst rates in an economy Expansionary monetary policy Decrease the interest rate Increase the money supply Decrease the reserve ratio Buy back governments bonds Contractionary monetary policy Increase the interest rate Decrease the money supply Increase the reserve rate Sell gov bonds.