Determinants of AD

­ AD	AD
C AD	C AD
I AD	I AD
G AD	G AD
Xn AD	Xn AD
MS Interest Rates I AD	MS Interest Rates I AD
T C AD	T C AD
S C AD	S C AD

Determinants of AS

AS	AS
price of resources AS	price of resources AS
productivity AS	productivity AS
business taxes and gov't red tape AS	business taxes and gov't red tape AS

But what causes the determinants of AD to change? Well, economists have identified some determinants of the main components of spending: C, I, G, and Xn.

Determinants of C, I, G, and Xn:

C = consumer spending (and saving)

1. consumer wealth
   Wealth C AD
   Wealth C AD
   
2. consumer expectations
   Expected future Income C today AD today
   Expected future Income C today AD today
   
3. consumer indebtedness
   Consumer Debt C AD
   Consumer Debt C AD
   
4. taxes
   T C AD
   T C AD

I = investment spending

1. interest rates (money supply)
   MS Interest Rates I AD (memorize this, it will help in future chapters)
   MS Interest Rates I AD
   
2. profit expectations on investment projects
   profit expectations I AD
   profit expectations I AD
   
3. business taxes
   Business Taxes I AD
   Business Taxes I AD
   
4. technology
   technology I AD
   
5. degree of excess capacity
   excess (unused) plant capacity I AD
   excess (unused) plant capacity I AD
   

G = government purchases

Xn = net export spending

1. net income abroad
   Income in Foreign Countries Xn AD
   Income in Foreign Countries Xn AD
   
2. exchange rates
   value of the US dollar Xn AD
   value of the US dollar Xn AD