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Questions
State components of aggregate demand.
State the major components of aggregate demand.
State aggregate demand mains components.
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Solution
- 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.
- 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.
- Government expenditure (G) is the planned expenditure by the government on consumption and investment expenditure for the welfare of the economy.
- 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)
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