List and describe the
factors that determine
the four components of
aggregate
planned expenditure)
Aggregate demand can be understood as the total goods and services demanded in a particular market. In other words, it is the planned total expenditure in an economy at the prevailing price level. Aggregate demand is determined by adding the following four components:
- Consumption
- Investment
- Government expenditure
- Net exports
Consumption:
This is consists of goods demanded or consumed by the households. Rise in the consumption by the households increases the aggregate demand and vice versa.
Investment:
This refers to the spending on capital by the firms in an economy which increases the output. It does not include investment done by the household. A rise in the investment by the firms increases the aggregate demand and vice versa.
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