Macroeconomics: Definitions

Aggregate Demand (AD)

is the total spending in an economy consisting of consumption, investment, government spending and, net-exports.

Consumption

is spending by households on consumer goods and services over a period of time.

Investment

is the addition to capital stock of the economy in the form of factories, offices, machinery, and equipment which is used to produce goods and services. A fast-food retailer, for example, builds a new outlet.

Aggregate Supply (AS)

is the total amount of domestic goods and services supplied by businesses and the government, including both consumer goods and capital goods.

Short Run Aggregate Supply

is AS that varies with the level of demand for goods and services and that can only be increased by improvement in the quantity and/or quality of factors of production.

Accelerator

is the relationship between the level of induced investment and the rate of change of national income.