IB Econ (AD)

What does aggregate demand (AD) represent?

• The total supply of goods in an economy
• The value of total demand for all goods and services in the economy per time period
• The income of households
• The total exports of a country

Why is the AD curve downward sloping?

• Higher prices increase purchasing power
• Lower prices decrease investment
• A lower average price level allows greater purchasing power
• A higher price level increases exports

What is the correct formula for calculating AD?

• AD = C + G + X - M
• AD = C + I + G + X - M
• AD = C + I + X
• AD = G + I + C

What is the largest component of AD?

• Investment (I)
• Net exports (X-M)
• Consumption (C)
• Government spending (G)

What does investment (I) refer to in AD?

• Household spending on goods and services
• Firms' expenditure on capital goods to increase productive capacity
• Government expenditure on infrastructure
• The amount of money saved in banks

What is the impact of higher interest rates on consumption?

• Increases consumption
• Reduces consumption
• No impact
• Increases imports

Which factor is NOT a determinant of consumption (C)?

• Consumer confidence
• Business taxes
• Interest rates
• Household indebtedness

What happens when business confidence increases?

• Investment increases
• Consumption decreases
• AD shifts left
• Imports increase

How does an increase in household wealth affect AD?

• Shifts AD left
• No effect
• Shifts AD right
• Reduces investment

Which of the following leads to an increase in government spending (G)?

• Lower taxation
• Increased economic confidence
• Higher unemployment
• Higher exchange rates