Elements of AD?! (1 Viewer)
- Thread starter SGSII
- Start date
RishBonjour
Well-Known Member
- Joined
- Aug 14, 2011
- Messages
- 1,261
- Gender
- Male
- HSC
- 2012
Aggregate demand is just the total demand for goods and services in an economy.
So the elements must be all the different sources of demand in the economy. (equation in the syllabus summarises them--> AD= C + I + G + (X-M)
do you need someone to explain now each of those elements effect AD ? sorry, didn't fully understand your question :/
So the elements must be all the different sources of demand in the economy. (equation in the syllabus summarises them--> AD= C + I + G + (X-M)
do you need someone to explain now each of those elements effect AD ? sorry, didn't fully understand your question :/
Okays thanks and yes please
If you remember the 5 sector circular flow from year 11, you can use that to visualise AD. Think of demand as wanting to buy something from a firm, and therefore aggregate demand as the sum of everyone who wants to buy things (goods and services) from firms.
So, all the injections into the circular flow go to firms, so you can think of Gov spending (G), Investment (I), net exports (X - M) as all the money flowing to firms demanding goods. Also income spent my households goes to firms, so include Y.
That's how you get AD = Y + G + I + X - M.
Those respective parts are the elements of AD.
So, all the injections into the circular flow go to firms, so you can think of Gov spending (G), Investment (I), net exports (X - M) as all the money flowing to firms demanding goods. Also income spent my households goes to firms, so include Y.
That's how you get AD = Y + G + I + X - M.
Those respective parts are the elements of AD.