When, at a particular price level, aggregate demand for final goods equals aggregate supply of final goods, the final goods or product market reaches its equilibrium. Aggregate demand for final goods consists of ex ante consumption, ex ante investment, Government spending etc. The rate of increase in ex ante consumption due to a unit increment in income is called marginal propensity to consume. For simplicity we assume a constant final goods price and constant rate of interest over short run to determine the level of aggregate demand for final goods in the economy. We also assume that the aggregate supply is perfectly elastic at this price. Under such circumstances, aggregate output is determined solely by the level of aggregate demand. This is known as effective demand principle. An increase (decrease) in autonomous spending causes aggregate output of final goods to increase (decrease) by a larger amount through the multiplier process.

Ex ante consumption implies :

Planned consumption

The correct answer is option (1) : Planned consumption

• Ex ante refers to "before the fact" or planned expectations.
• Ex ante consumption represents the planned or expected level of consumption that households and individuals intend to undertake based on their expectations about future income, wealth, and other economic factors.
• It contrasts with ex post consumption, which refers to actual consumption that occurs after the fact.