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Questions and Answers
What does Aggregate Demand represent?
What does Aggregate Demand represent?
- Total production of final goods & services in an economy
- Total supply of final goods & services in an economy
- Total investment in an economy
- Total demand for final goods & services in an economy (correct)
What does Private (Household) Consumption Expenditure include?
What does Private (Household) Consumption Expenditure include?
- Government's expenditure on goods and services
- Total expenditure of all units in the economy
- Firms’ expenditure on the purchase of capital goods
- Households’ expenditure on the consumption of goods and services (correct)
What does Investment Expenditure refer to?
What does Investment Expenditure refer to?
- Expenditure incurred by firms on labor costs
- Expenditure incurred by households on goods and services
- Expenditure incurred by the government on infrastructure
- Expenditure incurred by firms on the purchase of capital goods (correct)
What factors influence the consumption of households?
What factors influence the consumption of households?
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What is the formula for calculating Aggregate Demand?
What is the formula for calculating Aggregate Demand?
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Study Notes
Aggregate Demand and Expenditure Components
- Aggregate Demand represents the total amount of goods and services that all buyers in an economy are willing and able to purchase at a given price level.
Private Consumption Expenditure
- Private (Household) Consumption Expenditure includes expenditures by households on goods and services such as food, clothing, housing, healthcare, and entertainment.
Investment Expenditure
- Investment Expenditure refers to the expenditure by firms on capital goods, such as new buildings, machines, and equipment, to increase production capacity.
Factors Influencing Household Consumption
- Factors that influence the consumption of households include income, wealth, interest rates, prices, and consumer expectations.
Calculating Aggregate Demand
- The formula for calculating Aggregate Demand is: Aggregate Demand = Consumer Expenditure + Investment Expenditure + Government Expenditure + (Exports - Imports)
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