What is meant by Aggregate Demand ? State its component.
Solution :-
Aggregate demand is the sum total of expenditure that the people plan to incur on the purchase of goods and services produced in the economy corresponding to their different levels of income.
Expenditure on goods and services in broadly classified as:
1. Consumption Expenditure and
2. Investment Expenditure.
Accordingly, AD may also be defined as the sum total of Consumption Expenditure and Investment Expenditure that the people wish to make corresponding to different levels of income in the economy.
Components of AD:
A two-sector closed economy includes:
1. Household Sector- measures the demand for consumer goods (C) and
2. Producer Sector- measures the demand for such producer goods which lead to capital formation (I)
Thus,
AD (Aggregate Demand) = C (Household Consumption Expenditure) + I (Producers investment expenditure).
Aggregate demand is the sum total of expenditure that the people plan to incur on the purchase of goods and services produced in the economy corresponding to their different levels of income.
Expenditure on goods and services in broadly classified as:
1. Consumption Expenditure and
2. Investment Expenditure.
Accordingly, AD may also be defined as the sum total of Consumption Expenditure and Investment Expenditure that the people wish to make corresponding to different levels of income in the economy.
Components of AD:
A two-sector closed economy includes:
1. Household Sector- measures the demand for consumer goods (C) and
2. Producer Sector- measures the demand for such producer goods which lead to capital formation (I)
Thus,
AD (Aggregate Demand) = C (Household Consumption Expenditure) + I (Producers investment expenditure).