1. Unit 1 Area of Study 2

2. Aggregate Demand Factors Inflation: The rise in price of goods and services over a period of time. A healthy amount is around 2%. Unemployment: The amount of people, usually a percentage, who are out of work and actively seeking work. A healthy amount is around 5%. Interest Rates: The percentage of money charged for its use. Three Terms to Know:

3. Aggregate Demand Factors

4. GDP= C + I + G + (X-M) C= Consumer Spending: Household spending that is designed to help satisfy our needs and wants I= Private Investment Spending: Spending by businesses on machinery and building used to help make other goods and services G= Government Spending: Government outlays that are designed to help meet the needs and wants of the community X= Exports: The amount spent by people overseas on Australian-made goods M= Imports: The amount spent by Australians on foreign-made goods and services

5. Aggregate Demand Factors

7. Consumer Spending can be affected by: a.Disposable Income- Money that is available for spending after things like tax b.Consumer Confidence- Optimism about future household income and employment future c.Interest Rates- Higher rates encourage saving, lower rates encourage spending d.Rate of population growth- Immigration can lift consumption e.Budgetary policies – Decisions such as cutting income tax

8. Aggregate Demand Factors Private Investment Spending a.Business Confidence- The willingness of business to invest in new plant and equipment b.Interest Rates c.Company tax rates- Money paid to the government by firms on income

9. Aggregate Demand Factors Government Spending a.Unemployment- As unemployment rises, so does (G)overnment spending b.Inflation- Governments will tailor their spending to help combat inflationary pressures c.Population Growth- As the population grows, so will government spending d.Political- Election promises or political pressures may cause government spending to increase or decrease

10. Aggregate Demand Factors Exports a.The exchange rate- If the Australian Dollar is worth more, foreign buyers will be able to purchase less Australian goods b.Overseas economic conditions- Recessions or booms in other countries will increase the demand for Australian goods c.Natural disasters/Severe weather events- Disasters in Australia or overseas will affect the demand for our products

11. Aggregate Demand Factors Imports a.The exchange rate- A rise in $AUD will make foreign goods more attractive. b.Local economic conditions- A local boom makes foreign goods more attainable. c.Consumer Confidence locally- Higher confidence in the economy will lead to more purchases of overseas goods. d.Inflation Rate- A higher inflation rate in Australia will make foreign goods more attractive

12. Aggregate Demand Factors Questions: Check your understanding pg. 76 #4 Applied Economic Exercises pg. 95 #4 (Except #1),