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Assignment Instructions 1. State at least TWO determinants of each of the components of the AD, namely consumption, investmen

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1)Consumption is made by households and increase in consumption shifts AD to the right.Two determinants that affect consumption are Disposable income and expected future income.Disposable income is income after taxes.This income determine how much consumers will consume . Expected future income also affect consumption because if consumers are confident that their future income will increase they will consume more.

Investment is spending by firms on capital.Interest rates and business confidence are two determinants of investment .If interest rates decrease it becomes cheaper for firms to invest and also lower interest rate gives firms incentive to take risk.Again If firms are more confident about the economy and its future growth , they will invest more in capital, new projects ,buildings ,machinery etc.

Net exports is the difference between exports and imports.Exchange rate and trade policy affect net exports.

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