4.2.2.3 The determinants of aggregate demand NOTES

What does Aggregate Demand (AD) represent?

• The total quantity of goods and services purchased at different price levels within a year.

• The total government expenditure in a fiscal year.

• The total production capacity of an economy.

• The sum of all domestic savings.

Which equation correctly represents Aggregate Demand (AD)?

• AD = C + I + G + (X - M)

• AD = C + I + G + X

• AD = C - I + G + X

• AD = C + I - G + M

What influences consumer confidence as a determinant of Consumption (C)?

• Disposable income

• Technological advancements

• Business confidence

• Interest rates

Which factor is NOT a determinant of Investment (I)?

• Consumer confidence

• Business confidence

• Government policies

• Interest rates

What does the accelerator principle suggest?

• Investment changes are directly related to changes in aggregate demand.

• Savings rates accelerate as disposable income increases.

• Consumer spending increases with higher interest rates.

• Exports grow as government spending increases.

Which of the following is a determinant of Government Spending (G)?

• Fiscal policies

• Exchange rates

• Consumer confidence

• Business confidence

What is the primary difference between saving and investment?

• Investment is only for short-term purposes, while saving is for long-term.

• Saving is setting aside funds, while investment is using funds to create assets.

• Investment is mandatory, saving is optional.

• Saving is about spending, investment is about earning.

Which factor generally leads to increased savings?

• Decreased consumer confidence

• Lower interest rates

• Higher disposable income

• Younger age

What impact do higher interest rates have on savings behavior?

• They decrease the likelihood of saving.

• They may incentivize saving by offering greater returns.

• They encourage more spending rather than saving.

• They have no impact on savings.

How does an increase in government spending affect Aggregate Demand (AD)?

• It decreases AD.

• It has no effect on AD.

• It increases AD.

• It only affects the export component of AD.