Here's why:

• Aggregate Demand: This is the total demand for all goods and services produced in an economy at a given time and price level.

• Components of Aggregate Demand:

  • Consumption (C): Spending by households on goods and services.
  • Investment (I): Spending by businesses on capital goods (equipment, machinery, etc.).
  • Government Spending (G): Spending by the government on goods and services (e.g., infrastructure, defense).
  • Net Exports (X - M): Exports (X) minus Imports (M).

• Savings: Savings represent income that is not spent and therefore do not directly contribute to aggregate demand in the current period.