Aggregate Demand Paper Example

Introduction

Aggregate demand is referred to as a financial measurement of the overall finished products and services manufactured in an economy. It is stated as the entire amount of money traded for the products and services. Aggregate demand is also referred to final domestic demand, states the number of goods and services to be purchased at every possible value levels. It is, therefore, the demand for a state's gross domestic product. It comprises the sum of government expenditure, investment, net exports, and consumption.

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Factors Influencing Aggregate Demand

An increase in the four components that makes up aggregate demand which includes expenditure on exports minus imports, consumption expenditure, government spending and investment expenditure influence the total market, resulting to a gross domestic product to ascending pressure on value level.

Consumption is one of the factors that influence aggregate demand. Consumption expenditure highly depends on taxes, income, expectations, wealth and demographics. Government spending has an impact on aggregate demand. It is regarded as a crucial significant asset of economic policy. It is because it can be agreed by the state's representatives liberated of the level of earnings. Investment is a factor that depends on elements that govern its profitability. The revenues determine net exports. They include government exchange policies, trade rates and local versus foreign values. Aggregate spending is also defined as the total expenditure on both local goods and services.

Factors That Impact Aggregate Demand in the US

There is a decrease as a result of the rise in interest, decline in wealth and increase in taxes.US Congress frequently passes tax cuts. In the 2001 recession, a tax cut was passed into law. At such moments, it focuses on how people are to be relieved from the hard times of paying taxes. Aggregate demand proposes a complementary rationale.

When the total number of consumers declines, there is an impact on the aggregate demand of the US economy. This might be as a result of the rise in the cost of living or an increase in the government tax. Net exports also impact on shifting in the US economy. A state that runs a current account has an equilibrium of the capital account. The capital account might raise government expenditure if foreign representatives buy treasury bonds using their dollars (Feldstein and Martin 18). In the US, if they utilize their dollars in investing in US businesses, the investment expenditure on capital merchandise might increase.

Consumers and business confidence replicate macroeconomics realities. There is a higher level of confidence when the economy is rising briskly and low in a recession period. Economic confidence can however rise or fall as a result of some factors that don't have a close link to the direct economy. These factors include; different strategy events, the risk of hostilities, negative future prediction by prominent people and election results.

Works Cited

Feldstein, Martin. "Government deficits and aggregate demand." Journal of monetary economics 9.1 (1982): 1-20.