Edexcel A-Level Economics Notes | 2.2

Last updated on Oct 21, 2024

Aggregate demand is the total planned spending in the economy at every price level.
A change in any of the following factors or sub-factors will lead to a shift in AD.
AD = C + I + G + (X-M)
C (consumer spending): disposable incomes, wealth effects, interest rates, consumer confidence.
I (business investment on capital goods): interest rates, business confidence, rate of economic growth, animal spirits, demand for exports, regulations.
G (government spending): state of the economic cycle, fiscal policy.
X-M (net exports): exchange rates, relative inflation rates, state of the world economy, protectionism, quality.
We would move along the AD curve if there is a shift in the AS curve.
Consumers either spend or save.
MPC (marginal propensity to consume) tells us how much of an extra £1 of income we would spend.
MPS (marginal propensity to save) tells us how much of an extra £1 of income we would save.
Gross investment does not factor in the value of depreciation but net investment does.