Examine the factors which affect the level of aggregate demand in your country
- The general price levels in the country: when the general price level s of goods and services are high, aggregate demand lowers and when the general price level is low aggregate demand increases.
- The general level of incomes: when the incomes of households and firms in a country are high, the demand for goods and services are high and vice versa.
- The amount of money supply in an economy: the high supply of money in the country increases the purchasing power of the households and firm raising the aggregate demand.
- The level of aggregate money demand in a country. High level of aggregate money demand reduces the purchasing power of consumers reducing aggregate demand and the vice versa.
- The supply of consumer goods and service. A limited supply of good and services force prices to increase and reduces the aggregate demand and vice versa.
- The distribution mechanism of good and services: When the distribution of goods and services is poor, the level of aggregate demand will be low and vice versa.
- The size of the population: high population increase purchasing power and aggregate demand and vice versa.
- The tastes and preferences. If the tastes and preferences are positive for particular goods and service, the purchasing power increases leading to increase in aggregate demand.
- The political climate in the country. A stable conducive political climate increase the purchasing power leading to increase in aggregate demand
- Economic climate. Stable economic climate such as stable prices increase purchasing power and therefore increase aggregate demand.
- Levels of development of the commercial sector. A well-developed commercial sector implies high levels of income leads to an increase in aggregate demand.
- Government polity on taxation and subsidization. When the tax rates in the country are high, this reduces the income of consumers leading to low purchasing power thus reducing aggregate demand.
- The expectation of inflation/speculation:– If the consumer expects high inflation in the future then the demand rises in the present such that the aggregate demand curve shifts rightward.
- Level of Advertising. The higher the level of advertising the higher the aggregate demand
CATEGORIES Economics
TAGS Dr. Bbosa Sciecne
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