Page 110 - F1 - AB Integrated Workbook STUDENT 2018-19

Chapter 7

Aggregate supply and demand

8.1 Aggregate Demand (AD)

While the level of activity within a particular industry will depend on specific PEST
issues, the overall level of activity in an economy (and therefore its growth) can be
predicted by reference to several key factors.

 AD = total demand for goods and services in the economy

 AD = C + I + G + (X – M)

8.2 Definitions/terminology/symbols

The economy can be measured in 3 ways, each of which gives the same answer:

 National product Value of finished goods and services

 National income (Y) Rewards earned by the factors of production

 National expenditure (E) Money spent purchasing the national product

Other key definitions include:

 Consumption (C) Goods produced and sold to consumers

 Savings (S) Income not spent

 Investment (I) Production of, or expenditure on, non-
consumption goods. Carried out by firms

 Injections (J) Expenditure on domestic output not originating
from consumers – e.g. Investment

 Withdrawals/Leakages (W) Income not spent on domestic output – e.g.
Imports

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