Question

State components of aggregate demand.

State the major components of aggregate demand.

State aggregate demand mains components.

Answer 1

1. Private consumption expenditure (C) is the total expenditure of households on final goods and services to satisfy their wants. It includes autonomous consumption expenditure and induced consumption expenditure.
2. Private investment expenditure (I) is ex-ante investment by private investors corresponding to different income levels in the economy. It includes autonomous investment expenditure and induced investment expenditure.
3. Government expenditure (G) is the planned expenditure by the government on consumption and investment expenditure for the welfare of the economy.
4. Net export (X–M) is the difference between the goods and services produced domestically by the rest of the world and abroad by the residents of a country.

Therefore, the formula for Aggregate Demand is

AD = C + I + G + (X – M)