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State with Reason Whether You Agree Or Disagree with the Following Statement. Aggregate Demand Depends Only on the Consumption Expenditure. - Economics

Answer in Brief

State with reason whether you agree or disagree with the following statement.

Aggregate demand depends only on the consumption expenditure.

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Solution

The above statement is incorrect. Apart from consumption expenditure, the aggregate demand also depends on the investment, government expenditure and net exports. It consists of the following components.

Demand by households - Private consumption expenditure (C)
Demand by firms - Private investment expenditure (I)
Demand by government - Government expenditure (G)
Demand by foreign sector- Net exports (X – M)
Where, X is exports and M is imports.
Thus,
AD = C + I + G + (X – M)

Concept: Concept of Aggregate Demand and Aggregate Supply
  Is there an error in this question or solution?
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APPEARS IN

Micheal Vaz Economics HSC 12th Standard Maharashtra State Board
Chapter 10 Determinants of Aggregates
Exercise | Q 1.1 | Page 94
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