Determinants of AD:
- Consumption
- Gross Private Domestic Investment (Ig)
- Government Spending
- Net Exports (Xn) = Exports - Imports
1. Change in Consumer Spending
- Consumer Wealth (Boom in stock market)
- Consumer Expectations (PPI fear a recession)
- Household Indebtedness (more consumer debt)
- Taxes (Decrease in income taxes)
2. Change in Investment Spending
- Real Interest Rates (Price of borrowing $)
(If interest rates increase)
(If interest rates decrease)
- Future Business Expectations (High expectation)
- Productivity & Technology (New robots)
- Business Taxes (Higher corporate taxes means...)
3. Changes in Government Spending
- (War...)
- (Nationalized Health Care)
- ( Decrease in defense spending)
4. Change in Net Exports (X - M)
- Exchange Rates
- (If US dollar depreciates relative to the euro National Income compared to abroad)
- (If the US has a recession)
AD = GDP = C + Ig + G + Xn
Government Spending:
- More govt spending (AD >)
- Less govt spending (AD<)
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