Instructions: Read the following paragraphs about aggregate demand.

Then,
fill in the summary table based on the information provided.
Aggregate Demand:
Aggregate demand (AD) is a term used in economics to describe the total
demand for all goods and services produced in an economy at a given overall
price level and in a given time period. It represents the amount of goods and
services that will be purchased at all possible price levels. This is an important
concept because it helps economists and policymakers understand the overall
demand in the economy and plan accordingly.
The formula for aggregate demand is AD = C + I + G + NX, where C stands for
consumption by households, I for investment by businesses, G for government
spending, and NX for net exports, which is the difference between a country's
exports and imports. Each of these components plays a crucial role in the
economy's aggregate demand.
Consumption is typically the largest component of aggregate demand. It can be
influenced by factors such as consumer confidence, taxes, and interest rates.
When consumers feel confident, they are more likely to spend money, thus
increasing consumption. Lower taxes and interest rates can also boost
consumption by increasing disposable income and making borrowing cheaper.
Investment by businesses is another vital component. It includes spending on
capital goods that will be used for future production. This component is
sensitive to interest rates and future economic expectations. Lower interest
rates make borrowing cheaper for businesses, encouraging them to invest
more.
Government spending directly adds to the aggregate demand as it represents
government consumption and investment. This component is independent of
the price level in the short term.
Net exports (exports minus imports) contribute to aggregate demand by
representing the external demand for a country's goods and services. A higher
demand for exports compared to imports can increase aggregate demand.
Several factors can shift the aggregate demand curve, including changes in
consumer confidence, interest rates, government policies, and external factors
like global economic conditions. Understanding these factors is crucial for
analyzing economic health and making informed policy decisions.
Summary Table
Fill in the blanks in the summary table based on the paragraphs you have read.

Component of
Description Influencing Factors
Aggregate Demand
c Consumption of Largest component of
households aggregate demand,
influence by consumer
confidence, taxes and
interest rates
i Investments by Spending on capital
businesses goods for future
production

g Government spending Represents government

consumption and
investment

nx Net Exports (Exports minus imports)

They contribute by
showing the demand for
a country’s goods and
services. Higher demand
compared to imports
can increase aggregate
demand.
Answer sheet

Component of
Aggregate Description Influencing Factors
Demand

The total spending by households Consumer confidence, taxes,

Consumption (C) on goods and services. interest rates

Spending on capital goods that will Interest rates, economic

Investment (I) be used for future production. expectations

Government Direct consumption and (Students fill in based on

Spending (G) investment by the government. paragraph)

The difference between a External demand, global

Net Exports (NX) country's exports and imports. economic conditions

Consumer confidence,
Factors that Shift (Students fill in based on interest rates, government
AD paragraph) policies, etc.