Question

A) outline 3 factors affecting aggregate demand

B) how can government X use one of these factors to increase aggregate demand of the country

Answer 1

A)

• Net exports effect.
• Real balances.
• Inflation expectations.

B)

• Net exports effect - The government can increase the prices of exports. This will result to an increase in aggregate demand for local products.
• Real balances - If the government can control inflation and lower it, this can increase real spending and value of money thus increasing aggregate demand
• Inflation expectations - Normally when the consumers are expecting a rise in inflation in the future, they will tend to buy more now causing aggregate demand to increase.