IM

Aggregate Demand
Aggregate demand (AD) is the total demand for all goods and services produced in an economy in a given price level and time period.
AD = C + G + I + (X – M)
C means consumer expenditure. This makes up the majority of AD in most countries (about 65% of the total). I means investment in capital goods from firms, and this is the most volatile component of AD. This typically accounts for 15-20% of GDP, and the majority (75%) is from private sector businesses. G means government spending on state-provided goods and services. Transfer payments (state benefits) do not count because these payments are not producing an output – they are a transfer of money from one group to another. X means exports; M means imports. Exports are goods sold to overseas countries and imports are what the UK buys from foreign countries.
(X – M) represents net exports. If this is positive, there is a trade surplus which adds to AD. Conversely, a negative net exports value means there is a trade deficit, which reduces AD.
Consumer Expenditure
Consumer expenditure is influenced by…
The amount of real disposable income is the main influence on consumer expenditure. Households and economies with more disposable income tend to spend more in total than poorer ones. The proportion of income that is spent is called the average propensity to consume (APC).
Wealth (the value of a stock of assets) affects C. Wealthier people tend to spend more. Wealth can be spent and can be used to borrow against. It also results in greater consumer confidence. For example, an increase in house prices will make homeowners feel more wealthy, and this encourages them to spend more. Consumer confidence and expectations have a significant influence on consumer spending. When consumers feel optimistic about the future (expecting good wages and job prospects), then they tend to
spend