Why does the aggregate demand curve slope downwards?

A lower price level raises the real value of money balances, tends to lower interest rates and makes exports more competitive, so planned spending is higher.

What counts as investment when measuring aggregate demand?

Investment is spending by firms on capital goods such as machinery, buildings, vehicles and technology, together with additions to stocks.

How does a rise in consumer confidence affect aggregate demand?

Confident households save a smaller share of income and are more willing to borrow for large purchases, so consumption rises and the aggregate demand curve shifts to the right.

Edexcel A-Level Economics B 9EB0

Scarcity, Choice and Potential Conflicts

Topic overview Scarcity and the economic problem Choice, trade-offs and opportunity cost Profit maximisation, sales maximisation and satisficing Survival, market share and other business objectives Stakeholders and their objectives Stakeholder conflicts and corporate social responsibility

Enterprise, Business and the Economy

Topic overview The entrepreneur and creative destruction Adding value Entrepreneurial motives Factors of production Division of labour and specialisation The wider economic environment and the firm

Introducing the Market

Topic overview Consumer objectives and the demand curve Movements along and shifts of the demand curve Producer objectives and the supply curve Movements along and shifts of the supply curve Equilibrium price and quantity Excess demand, excess supply and market forces Shifts in demand and supply in real markets Limitations of the supply and demand model Functions of the price mechanism Mass markets, niche markets and market growth Market research and consumer insight Market segmentation Market mapping and competitive advantage Adding value, pricing decisions and dynamic markets

The Role of Credit in the Economy

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Market Failure and Government Intervention

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Revenue, Costs, Profits and Cash

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Business Growth and Competitive Advantage

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Firms, Consumers and Elasticities of Demand

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Life in a Global Economy

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The Economic Cycle

Topic overview The economic cycle: boom, slowdown, recession and recovery Implications of the economic cycle for firms The circular flow of income, injections and withdrawals Aggregate demand and its components Aggregate supply, input costs and productivity Inflation, deflation and disinflation Price indices and the rate of inflation Real and nominal values, constant and current prices Demand-pull and cost-push inflation The impact of inflation on firms and individuals Employment, underemployment and the measurement of unemployment The causes of unemployment The impact of unemployment on firms and individuals

Introduction to Macroeconomic Policy

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Globalisation

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Economic Factors in Business Expansion

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Impact of Globalisation on Global Companies

Topic overview Globalisation and glocalisation Ethnocentric, polycentric and geocentric approaches to global markets Price and non-price competition in global markets Branding and differentiation in global markets Cultural and language barriers in global markets Adapting marketing strategy for niche and mass markets

Impact of Globalisation on Local and National Economies

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Global Labour Markets

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Inequality and Re-Distribution

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Competition and Market Power

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Market Power and Market Failure

Topic overview Cartels, collusion and restrictive practices Monopsony, natural monopoly and power in the labour market The implications of market failure for firms, consumers and government Promoting competition: anti-competitive practices, mergers and privatisation Regulating natural monopolies and protecting consumers and employees The Competition and Markets Authority and EU competition policy The benefits and costs of regulation

Market Failure Across the Economy

Topic overview Merit and demerit goods Factor immobility and information failure Externalities and social costs and benefits Environmental externalities and environmental change Policies to correct market failure

Macroeconomic Policies and Impact on Firms and Individuals

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Risk and the Financial Sector

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Macroeconomic Policies and Impact on Firms and Individuals

Aggregate demand and its components

3 things to know
Papers 1 and 3

Overview

Aggregate demand and its four components, the largest component, why the curve slopes downwards, investment in the national accounts, how consumer confidence, interest rates, postponed investment, sterling and income tax shift it, movements against shifts, order books as indicators, house prices and consumption, and imports.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Key term

Define aggregate demand.

Key term

State the four components of aggregate demand.

Key term

Which component of UK aggregate demand is normally the largest?

Questions from this subtopic

Each one with the model answer underneath.

1
Define aggregate demand.
Model answer
Aggregate demand is the total planned spending on an economy's goods and services at each price level over a given period.
2
State the four components of aggregate demand.
Model answer
The four components are consumption, investment, government spending and net exports, which is exports minus imports.
3
Which component of UK aggregate demand is normally the largest?
Model answer
Household consumption is the largest component, typically around two-thirds of aggregate demand.
4
Why does the aggregate demand curve slope downwards?
Model answer
A lower price level raises the real value of money balances, tends to lower interest rates and makes exports more competitive, so planned spending is higher.
5
What counts as investment when measuring aggregate demand?
Model answer
Investment is spending by firms on capital goods such as machinery, buildings, vehicles and technology, together with additions to stocks.
6
How does a rise in consumer confidence affect aggregate demand?
Model answer
Confident households save a smaller share of income and are more willing to borrow for large purchases, so consumption rises and the aggregate demand curve shifts to the right.

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Enterprise, Business and the Economy

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The Role of Credit in the Economy

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ABorrowing becomes dearer and saving more rewarding.

BMortgage holders have less disposable income left.

CSpending on credit-financed items falls.

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