Determinants of AD- 02/17/2017

Determinants of AD

Determinants of AD:
-Consumption (C)
-Gross private investment  (Ig)

-Government spending (G)

-Net exports (Xn)

Change in consumer spending
-Consumer wealth (boom in the stock market)
-Consumer expectations (people fear a recession)
-Household indebtedness (more consumer debt)

-Taxes (decrease in income taxes)

Change in investment spending
-Real interest rates (price of borrowing money)
-Future business expectations (high)
-Productivity + Technology (new robots)
-Business taxes (higher corporate taxes)

Government Spending
-War
-Nationalized Health Care
-Decrease in defense spending
-More government spending = increase in AD
-Less government spending = decrease in AD

Change in net exports
-exchange rates
-National income compared to abroad
-AD = GDP = C+Ig+G+Xn