Aggregate Demand | A-Level Economics Notes

These revision notes cover everything you need to know about Aggregate Demand for A-Level Economics. They're designed for students studying AQA A-Level Economics, Edexcel A-Level Economics, and Edexcel International A-Level Economics. Written by Jaisul Naik, UCL Economics graduate and A-Level Economics tutor since 2017.

What is aggregate demand?

Aggregate demand is the total planned spending on goods and services in the economy at each price level.

What are the factors of aggregate demand?

AD = C + I + G + (X-M)

1. Consumer spending
   1. real incomes
   2. consumer confidence
   3. interest rates
2. Business spending on capital goods
   1. business confidence (accelerator theory)
   2. interest rates
   3. business profits
   4. corporation tax rates
3. Government spending
   1. state of the economy
   2. changes in fiscal policy
   3. national debt
4. Net exports
   1. exchange rates
   2. raw material prices
   3. competitiveness

What is the accelerator theory?

The accelerator theory suggests that an increase in the rate of economic growth (national income) usually leads to a proportionately larger increase in investment (spending on capital goods). 

What is the multiplier?

The multplier is the change in national income/ initial change in aggregate demand.

The multplier effect occurs when an increase in aggregate demand leads to further increases in aggregate demand.

k = 1/(1-MPC)

k: the multiplier

MPC: marginal propensity to consume