The determinants of AD, ie the determinants of consumption, investment, government spending, exports and imports
Aggregate demand (total spending in the economy) has four components. Different factors drive each one up or down, shifting the whole AD curve.
Formula
AD = C + I + G + (X − M)
Real World
When the Bank of England raised interest rates to 5.25% in 2023, UK mortgage costs jumped sharply, squeezing household disposable income and reducing consumption — a direct transmission from monetary policy to the C component of AD.
Exam Focus
Link each determinant explicitly to its component (e.g. 'higher interest rates reduce C and I, shifting AD left') to earn chain-of-reasoning marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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