Aggregate Demand

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    Aggregate demand (AD) is the total amount of expenditure on goods and services in an economy.

    1) Consumption (C).

    Consumption is total consumer expenditure on durable goods (electronics), non-durable goods (food) and services (banking).

    2) Investment (I).

    Investment is total investment by firms on buildings, machinery and the change in inventories.

    3) Government Expenditure (G).

    Government expenditure is total expenditure by the government on goods and services.

    4) Net Exports (X-M).

    Exports are domestic goods and services sold to foreign agents. Imports are foreign goods and services bought by domestic agents. Net exports are exports minus imports.

    AD will increase (decrease) and shift right (left) if C, I, G, and/or X-M rise (fall).

     

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