Aggregate Demand | Edexcel A-Level Economics A (9EC0)
Aggregate Demand
- 104 questions
- 6 subtopics
- Theme 2: the UK economy, performance and policies
- Paper 2 and Paper 3
Covers total spending in the economy: the four components of aggregate demand, why the curve slopes downward and what shifts it, and the influences on consumption, investment, government spending and net trade..
It covers the components of aggregate demand, the AD curve: why it slopes down and what shifts it, consumption (C), investment (I), government expenditure (G) and net trade (X-M).
Sample questions from Aggregate Demand
Answer each one closed book first, then open the answer.
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The components of aggregate demand
What does I represent in the aggregate demand formula?
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Investment, which is spending by firms on capital goods. -
The components of aggregate demand
What does (X - M) represent and what is it also called?
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Net exports, also called the trade balance. -
The AD curve: why it slopes down and what shifts it
How does a lower domestic price level affect the competitiveness of exports according to the trade effect?
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A lower domestic price level makes domestically produced goods cheaper relative to foreign goods, making exports more competitive in international markets. -
The AD curve: why it slopes down and what shifts it
How would a fall in interest rates affect the AD curve?
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It would shift the AD curve to the right, as lower borrowing costs encourage more consumption and investment. -
Consumption (C)
What does the savings ratio measure?
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The proportion of disposable income that households save rather than spend. -
Consumption (C)
Why does high consumer confidence encourage spending?
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Because households feel secure about their future income and employment prospects. -
Investment (I)
Explain how a higher rate of economic growth affects investment.
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Higher economic growth increases investment because firms need to expand capacity to meet rising demand — this is known as the accelerator effect. -
Investment (I)
Through what two channels do higher interest rates discourage investment?
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Higher interest rates increase the opportunity cost of investment (returns from saving become more attractive) and raise borrowing costs for firms.
The 6 subtopics
One subtopic is one session. Work down the list.
| Subtopic | What it covers | Questions |
|---|---|---|
| The components of aggregate demand | Recall questions on the AD formula, what each component means, and which are the largest and the most volatile. | 12 |
| The AD curve: why it slopes down and what shifts it | Recall questions on the wealth, interest rate and trade effects, and on what moves the curve rather than moving along it. | 17 |
| Consumption (C) | Recall questions on disposable income, saving, interest rates, confidence and wealth as influences on consumer spending. | 19 |
| Investment (I) | Recall questions on gross and net investment and depreciation, the accelerator effect, business confidence and Keynes’s animal spirits, export demand, interest rates, access to credit and the credit crunch, and the effect of government policy and regulation on investment. | 20 |
| Government expenditure (G) | Recall questions on the influences on government spending, including the trade cycle and fiscal policy. | 17 |
| Net trade (X-M) | Recall questions on real income at home and abroad, the exchange rate, protectionism and competitiveness as influences on net trade. | 19 |
How the guide is worked
Answering a question from memory stores it far better than reading the answer again. The guide runs that as a fixed procedure on one subtopic at a time, about twenty minutes a session.
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Step 1 · Closed book
Cover the answers. Work through one subtopic and write down what you can. Leave blanks where you have nothing.
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Step 2 · Open book
Go back to the top. Read each printed answer and write it out in full, including the ones you had right.
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Step 3 · Closed book again
Same questions, same order, from memory. The gap between pass one and pass three is the session result.
Read the full method, the return schedule and the research behind it.
Nearby topics
Edexcel A-Level Economics A Active Recall Guide
Every topic, not just this one. 2,508 questions with their answers.