Determinants of Aggregate Demand Aggregate Demand is the total amount of G&S demanded(purchased) by the CONSUMER, BUSINESS, and GOVERNMENT and NET EXPORTS sectors of the economy. Government uses fiscal policy to increase or decrease aggregate demand.

1. C- Consumer spending: DPI=Disposable Personal Income- Income after taxes ∆DPI/Income Expectations  direct ∆C  direct ∆AD ↑ DPI/Income Expectations → ↑ C → ↑ AD ↓DPI/Income Expectations → ↓ C → ↓ AD

2a. I - Business Investment ∆IR → inverse ∆I → inverse ∆AD ↓ IR → ↑ I → ↑ AD ↑ IR → ↓ I → ↓ AD

2b. I - Business Investment ∆Profits/ Profit Expectations → direct ∆I → direct ∆AD ↑ Profits/ Profit Expectations → ↑ I → ↑ AD ↓ Profits/ Profit Expectations → ↓ I →↓ AD

3. G- Government Spending ∆G → direct ∆AD ↑ G →↑ AD ↓G →↓AD

4a. Nx- Net Exports [Exports (x) – Imports (m)] ∆$ value → inverse ∆x → inverse ∆AD ↓ $ value → ↑ x, ↓ m → ↑ AD ↑ $ value → ↓ x, ↑ m → ↓ AD

4b. Nx- Net Exports [Exports(x) – Imports (m)] ∆foreign income → direct ∆x → direct ∆AD ↑ foreign income → ↑ x → ↑ AD ↓ foreign income → ↓ x → ↓ AD

5. Transfer payments ∆TP → direct ∆DPI → direct ∆C, I → direct ∆AD ↑ TP → ↑ DPI → ↑ C, I → ↑ AD ↓TP → ↓DPI → ↓C, I → ↓AD

6. MS- Money Supply ∆MS → inverse ∆IR →direct ∆C, I → direct ∆AD ↑ MS → ↓ IR → ↑ C, I → ↑ AD ↓ MS → ↑ IR → ↓ C, I → ↓ AD

7. S- Savings ∆S → inverse ∆C → inverse ∆AD ↓ S → ↑ C → ↑ AD ↑ S → ↓ C → ↓ AD

8. T-Taxes ∆T → inverse ∆DPI → inverse ∆C, I → inverse ∆AD ↓ T → ↑ DPI → ↑ C, I → ↑ AD ↑ T → ↓ DPI → ↓ C, I → ↓ AD

Determinants of Short Run Aggregate Supply Things that cause the short run aggregate supply curve to shift- A TEMPORARY change in(∆):

1. Quantity and Quality of natural resources (Land) ∆ price → direct ∆ c of p → inverse ∆SRAS ↓ price → ↓ c of p → ↑ SRAS ↑ price → ↑ c of p → ↓ SRAS

2. Productive Labor force ∆ wage rate → direct ∆ c of p → inverse ∆SRAS ↓ wage rate → ↓ c of p → ↑SRAS ↑ wage rate → ↑ c of p → ↓ SRAS

3. Quantity and Quality of Capital ∆ price → direct ∆ c of p → inverse ∆SRAS ↓ price → ↓ c of p → ↑ SRAS ↑ price → ↑ c of p → ↓ SRAS

Determinants of Long Run Aggregate Supply Things that cause the long AND short run aggregate supply curve to shift at the same time- A change in(∆)

1. Quantity and Quality of natural resources (Land) ∆ availability → inverse ∆ c of p → direct ∆LRAS ↑ availability → ↓ c of p → ↑ LRAS ↓ availability → ↑ c of p → ↓ LRAS

2. Productive Labor force ∆ availability → inverse ∆ c of p → direct ∆LRAS ↑ availability → ↓ c of p → ↑ LRAS ↓ availability → ↑ c of p → ↓ LRAS

3. Quantity and Quality of Capital stock (Gross - Depreciation) ∆ availability → inverse ∆ c of p → direct ∆LRAS ↑ availability → ↓ c of p → ↑ LRAS ↓ availability → ↑ c of p → ↓ LRAS

4. Government Incentives ∆ subsidies/ business tax credits →inverse ∆ c of p → direct ∆ LRAS ↑ subsidies/ business tax credits → ↓ c of p → ↑ LRAS ↓ subsidies/ business tax credits → ↑ c of p → ↓ LRAS

4. Government Incentives ∆ business taxes/ regulations → direct ∆ c of p → inverse ∆LRAS ↓ business taxes/ regulations→ ↓ c of p → ↑ LRAS ↑ business taxes/ regulations → ↑ c of p → ↓ LRAS

5. Technology ∆Tech → direct ∆productivity of L, C → inverse ∆ c of p → direct ∆LRAS ↑ Tech → ↑ productivity of L, C → ↓ c of p → ↑LRAS ↓ Tech →↓ productivity of L, C → ↑ c of p → ↓ LRAS