Which of the following is a component of aggregate demand?

The correct answer is Option 2: Consumption

Consumption is a key component of aggregate demand, which also includes investment, government spending, and net exports (exports minus imports). Foreign currency and the rate of interest are not components of aggregate demand; instead, they influence it.

In a 4 sector model economy, following components are included in aggregate demand/aggregate expenditure:

1. Private final consumption expenditure
2. Government final consumption expenditure
3. Investment expenditure
4. Net exports