Which of the following is true?
- Aggregate demand refers to the sum total of both demand and supply for all the goods and services in an economy during the accounting year, AD = C + I.
- Aggregate demand refers to the total expenditure on the final goods and services in the economy.
- If people spend less than what they were spending on goods and services earlier, it indicates a rise in the aggregate demand and vice versa.
- The components of aggregate demand and aggregate expenditure are same.
- There is an inverse relation between the aggregate demand and general price level.
Answer & explanation
Correct answer: option 2
The correct answer is option 2: 2, 4 and 5
Explanation:
- Statement 2 is correct because aggregate demand refers to the total expenditure on final goods and services in an economy.
- Statement 4 is also correct, as the components of aggregate demand and aggregate expenditure are indeed the same. Both refer to the total spending in the economy.
- Statement 5 is correct, as there is an inverse relationship between aggregate demand and the general price level (as prices rise, demand typically falls, and vice versa).
Statement 1 is incorrect because aggregate demand refers only to the demand side, not the sum of both demand and supply.
Statement 3 is incorrect because if people are spending less, it indicates a fall in aggregate demand, not a rise.