Definition: Total amount of real output that consumers, firms and governments and foreigners want to buy at each possible price level, over a period of time. Essentially, it is the sum of all demand curves. It is composed of elements in expenditure approach.

Determinants of AD

Since it is composed of the four components in calculations of the expenditure approach, each part can determine the AD.

Changes in consumption

• Consumer confidence.
• Changes in interest rates. Lower rates lead to more spending.
• Changes in value of assets, or wealth.
• Changes in income taxes.
• Household indebtedness

Changes in investment

Pretty much the same with consumption.

• Changes in business confidence
• Changes in interest rates. Lower rates lead to more spending.
• Changes in value of assets, or wealth.
• Changes in business taxes.
• Corporate indebtedness

Changes in government spending

• Changes in political priorities
• Economic priorities

Changes in net exports

Has a lot to do with trades, so I’m not there yet

• Exchange rates
• Trade policies