Question

Name and explain two factors that change aggregate demand, providing an example of each.

Answer 1

Factor that change aggregate demand

Aggregate demand mein is the total demand for final goods and services in an economy. It is actually total expenditure of all the unit of the economy. i.e households, firms, Governments and rest of the world.
Following are the factors that change aggregate demand curve

A. Income and wealth :- when consumers are feeling good about the economy they tend to spend more leading to a a decline in savings. A household wealth increase aggregate demand usually increase as well. Conversely a decline in wealth usually lead to lower aggregate demand. Increases in personal savings will also lead to less demand for goods which tends to occur during recessions.

2. Change in inflation expectations:- if consumers believe price will fall in the future aggregate demand tend to fall as well. Consumers who feel that inflation will increase or price will rise tendto make purchase now which lead to rising aggregate demand.

Whether interest rate are rising or falling will affect decisions made by consumers and businesses.lower interest rates will lower the borrowing cost for big ticket items such as appliances, vehicle and home.also companies will be able to borrow at lower rate which tend to lead to capital spending increase.