What is meant by aggregate demand? State its components.
CBSE DELHI - OUTSIDE DELHI - FOREIGN SET 3 2018
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Demand of all final goods and services by all the consumers of an economy at given price level is known as aggregate demand.
The components of aggregate demand are:-
A.D. = C + I + G + N.E.
The components of aggregate demand are:-
A.D. = C + I + G + N.E.
- Demand for Private Consumption (C): The demand of goods and services by the households during a given time period, is included in this. It is affected by many variables such as, price of the goods, income of consumer, expected income, wealth, tastes and preferences of individuals, consumption function, propensity to consume, etc.
- Demand for Private Investment (I): It includes the investment in new fixed assets and change in stock, such as addition of new machinery, residential structures, etc. This investment demand is affected by rate of interest and marginal efficiency of investment.
- Demand for Government Expenditure (G): It includes the expenditure made by government for collective wants (such as Government schools, hospitals, roads, etc.) and investment expenditure on Government enterprises. This expenditure depends on the condition of economy, form of Government, policies of Government, needs of public, etc.
- Demand for Net Exports (N.E.): Net exports is the difference between exports and imports. It depends on the quality of goods produced, price of the commodity, availability of commodity, income and living standard of people of that country, etc.
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