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Aggregate Demand

P

Pepps

Member
Apologies if I am missing something really obvious here but I can't get my head round this.

As I understand it aggregate demand is defined as: total spending on domestically produced goods and services.

In Chapter 16 it states that reducing aggregate demand will 'reduce the demand for imports'.

Given that imports are not produced domestically how is this the case?

Thanks
 
Hi,

All we're saying here is that a reduction in aggregate demand will lead (via a multiplier effect) to a reduction in domestic national income. Consequently, as domestic citizens have less income to spend they will buy fewer imports (and also fewer domestically produced consumption goods as well).

I hope this makes sense.

Graham :)
 
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