1.2 Aggregate Demand

Question 1

What is aggregate demand?

Answer 1

Aggregate Demand - the total spending on domestically produced goods and services in an economy over a given period of time

Question 2

What is Aggregate Demand made up of?

Answer 2

1. Consumption (C): - total spending by households on goods and services in an economy over a given period of time
2. Investment (I) - total spending by firms on capital goods in an economy in a given period of time
3. Government Expenditure (G) - total spending by the governments on goods and services in a given period of time
4. Net Exports (X - M) - total export revenue - total import expenditure

Question 3

What is the main factor affecting Consumption?

Answer 3

• most important factor contributing to C is disposable income (income after tax)