Aggregate Demand - Macro Flashcards

1
Q

Aggregate Demand definition

A

Total spending in an economy; sum of all market demand curves;

Consumption, investment, government, net exports

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2
Q

Consumption spending

A

By individuals on goods and services (not housing - investment) - 70% spending in the US determined by PDI

Consumption function - relationship between disposable income and consumption spending (PDI) and (CS)

CS > PDI = Borrowing

CS

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3
Q

Marginal Propensity to Consume (MPC)

A

Change in consumption spending as a percent of the change in disposable income; $1 additional disposable spent 90c = 90%

MPC=MPS (save) reciprocal

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4
Q

Investment Spending

A

Spending on capital items; PPE, residential - 15% spending in US;

Interest rate, demographics, consumer confidence, consumer income and wealth, etc…

Overtime interest rates become the most significant factor

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5
Q

Government Spending

A

Purchase of goods and services by all levels of gov. Excludes transfer payments (social security) - spending typically impacts taxes

Use of government spending to impact aggregate demand = discretionary fiscal policy

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6
Q

Imports and Exports

A

Net exports = exports - imports

Exports>imports = increases in aggregate demand

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