mod 2;revision; half from the chapter 4

Aggregate demand (AD) the total demand for goods and services produced in an economy at a given price level.
AD=G+I+C+net exports
Price leve - the average of each of the prices of all the products in an economy.
consumer expenditure - spending by households on consumer products.
investment  - spending on capital goods.
government spending - spending by the government on goods and services. Net exports - (exports-imports). Consumer expenditure is consumtion. The largest component of AD.It is spending by households on clothing,food,insurance.*Investment is the most variable component of AD. Basicly government spend on education,health care,police services,public goods and NOT include 1) transfer payments 2) job seeker's allowance 3) pensions . 1)transfer payments -  money which transferred from one person(group) to another not with return. 2)  job seeker's allowance - a benefit paid by the government to unemployed and trying to find a job. 3) pensions - basicly grandfathers and mothers who have lived honestly and paid taxes and insurance.
Net exports add foreigners (people form abroad) spending on the country's goods and services and  deduct (take away) spending by the country's population in improts. If a country has a trade surplus (the value of exports exceeding the value of imports) with exports being greater than imports,then adding net export to C+G+I will shift to the right in AD if the existance of a trade deficit ( the value of imports exceeding the value of exports) would mean that AD would be lower.
There're a range of infuence on how much households spend:
*real disposable income (after taxes and inflation) this is the main influence on consumers expenditure. When rich people tend to spend more in total is average propensity to consume (apc) the proportion of income that is spent.
*Wealth - the more people have - the more they tend to spend.Wealth can be used to borrow or to spend it is called consumer confidence (how optimistic consumers are about future econimic prospects)
Change in the interest rate has important influence on consumers.Usually a fall in the rate of interest will a rise in consumer expenditure.
1) cheaper to borrow
2) it reduce the incentive to save, by spending people are giving up less interest.
3) those who are paying interest on mortgage/loan will have  more money to spend.
Net savers - people who save more than they borrow.
    St.day of poor people
redistribute income from the rich to the poor it will be an increse in total consumer spending.
Inflation - a sustained rise in the price level.
Savings is not part of AD.
Influences on savings include:
*real disposable income - save a higher proportion of the income (average propensity to save)saving devided by disposable income.
*the rate of interest - a rise in the rate of interest  increase the reward for savings and encourages people to save more.Target savers - people who save with a target figure in mind. They save to achieve a sum in savings.
*confidence and expactations - households and firms a tend to save more when they not sure about future.
*savings schemes - when people want to save in insurance adn pension schemes.
*range of financial institutions - a good deal with well-respected institutions  in the country to save.
*government policies - a decision by the government to introduce tax-free savings schemes it lead to encourage people to save more.
*the age structure of the populaton - basicly youngsters spend more in contrast with middle age.
Dissave - spending more then disposable income.
     Investment. Without investmnet it will not any business schemes and development in economics. Firms invest, when they expect the profit form the capital goods that they buy to be greater than their cost.
Influences on investment include:
*changes in real disposable income.  When real disposable income rising for consumer goods and services the demand is increase too.  This can to encourage firms to expand thier capacity.
*expectations - firms are much more likely to invest if they see future in the plane.
*capacity ultilisation - firms more likely to invest to work to full capacity.
*corporation tax - is tax on firms profit. Keeping profit may lead to increase in investment.
The rate of interest - increase in rate will lead to stop investment. reasons:
increase in opportunity cost of investment.
opting ti buy capital goods
invesment is financed out of retained profit (some by borrwing)
more expensive to borrow and will decrease in invesment
will reduce the demand for shares.
*advances in technology - firm may buy new equipment in case in better quality or to produce more cheaply.
*price of capital equipment a reduction in the price of capital equipment may increase in investment.