Analyze how a non-income determinant of aggregate demand affects GDP. Choose and analyze one of the be
Analyze how a non-income determinant of aggregate demand affects GDP. Choose and analyze one of the below GDP components and associated non-income determinants of aggregate demand: • Consumption — Net Wealth (Assets of Households minus Debts of Households), Price Level, Interest Rate, Consumer Expectations. • Investment — Interest Rate, Business Expectations. • Government — Change in Government Spending. • Exports — Foreign Income Levels, Exchange Rates. • Imports — Exchange Rates. Be sure to discuss if the chosen component and determinant analyzed had a change in GDP by an increase or decrease. Analyze and discuss if the determinant trend is expected to continue, and if so, for how long is it expected to continue. Explain why it is important for a business manager to understand aggregate demand.
The non-income determinant selected for discussion is the marketing and advertisement initiatives.
The component selected for discuss is the consumption.
A positive increase in the budget of marketing and advertising causes an increase in demand and it helps in increasing the GDP. The GDP increases because supply of products increases to cater the demand. Further, it increases the consumption level of the household.
Increase in demand also causes an increase in supply. It results into the demand of input factors of production and their price increases also. It creates demand pull inflation and prices increase.
Besides, the increase in supply causes more employment opportunities and build wealth for the consumers as all income are not spent due to the marginal propensity to consume (MPC) and save (MPS).
It makes an impact upon interest rates also and government manipulates it to bring stability in the economy. Consumer expectations are positively built due to surge in demand and overall GDP. It brings back the investor’s confidence in the market.
The trend in marketing and advertising is expected to grow and move from offline marketing to online marketing due focused geographical targeting. Companies are inclined to increase the marketing budget to attract new customers and build new markets.
A business manager needs to understand the aggregate demand because:
1. It is the demand that drives supply
2. Aggregate demand depends upon the multiple factors that can significantly affect the sales of the his own companies
3. Forecasting of aggregate demand over a period of time and factors can help managers to take a proactive approach to increase the sales and revenue for his own organization