Aggregate demand

Question 1

What is Aggregate Demand

Answer 1

Aggregate demand (AD) is the total demand for all goods/services in an economy at any given average price level

Question 2

Components of Aggregate Demand

Answer 2

AD = Consumption (C) + Investment (I) + Government spending (G) + (Exports-Imports) (X-M)

AD = C + I + G + (X-M)

Question 3

Consumption

Answer 3

Consumption is the total spending on goods/services by consumers (households) in an economy

Question 4

Investment

Answer 4

Investment is the total spending on capital goods by firms

Question 5

Government

Answer 5

Government spending is the total spending by the government in the economy:

Includes public sector salaries, payments for provision of merit and public goods etc.

It does not include transfer payments