Aggregate demand for final goods consists which of the following?
(A) Ex-ante consumption.
(B) Ex-ante Investment.
(C) Government spending.
(D) Effective demand.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (C) only
Aggregate demand for final goods is the total planned spending on these goods. ‘Ex ante’ means planned.
(A) Ex-ante consumption. — Correct. The planned consumption of the households is one part of aggregate demand.
(B) Ex-ante Investment. — Correct. The planned investment of the firms is another part. Without a government, aggregate demand is AD = C + I.
(C) Government spending. — Correct. Once there is a government, its spending is added to the demand for final goods: AD = C + I + G.
(D) Effective demand. — Incorrect. The effective demand principle says that, under given conditions, output is determined solely by the level of aggregate demand. It explains how output is settled, so it is not one of the parts of aggregate demand.
NCERT (2026-27): “4.2 Determination of Income in Two-sector Model In an economy without a government, the ex ante aggregate demand for final goods is the sum total of the ex ante consumption expenditure and ex ante investment expenditure on such goods, viz. AD = C + I.… Summary … 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.…” |