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
The aggregate demand (AD) for final goods and services in an economy refers to the total planned (ex-ante) expenditure on domestically produced goods and services during a given period.
It includes:
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(A) Ex-ante consumption (C) → planned consumption expenditure by households.
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(B) Ex-ante investment (I) → planned investment expenditure by firms.
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(C) Government spending (G) → expenditure by the government on goods and services.
Hence, AD=C+I+G
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(D) Effective demand is not a component of aggregate demand; it is the level of AD that equals aggregate supply at equilibrium.