Aggregate Demand - shifts of the aggregate demand curve - changes in wealth

3 important questions on Aggregate Demand - shifts of the aggregate demand curve - changes in wealth

Consumer spending depends on what two factors?

Consumer spending depends in part on the value of household assets

How does the size of Existing stock of physical capital  affect planned investment?

  • Firms engage in planned investment to add to their stck of physical capital
  • theri incentives to spend increases
  • the more they have the less they will feel the need to add more

How does wealth affect consumer spending? Give 1 example

  • When the real value of assets rises,
  • the purchasing power the rises,
  • their incentive to spend increases
  • they consume more 
  • for example significant rise in the stock market the increases aggregate demand

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