Question

Which of the following is true about aggregate demand

Select the correct answer below:
a. It is derived from exports and imports
b. It is the sum of all goods and services demanded by a nation's consumers
c. It is a measure of total spending on domestic goods and services.
d. It does not take into account the expenditure that is planned for in the government budget

Answer 1

Aggregate demand is a measure of total spending on domestic goods and services, encompassing consumption, investment, government spending, and net exports (exports minus imports).

Step-by-step explanation:

The correct answer to the question regarding aggregate demand (AD) is: It is a measure of total spending on domestic goods and services. AD includes the sum of four components: consumption expenditure, investment expenditure, government spending, and spending on net exports (exports minus imports). Each of these components represents a different type of spending within the economy. Exports are included in AD because they are domestically produced goods and services sold abroad, whereas imports are subtracted because they represent spending on foreign-produced goods, which does not contribute to demand for domestic goods and services.

When considering the impact of imports on aggregate demand, it is important to understand that an increase in imports would effectively lower AD, since AD is focused on the demand for domestically produced goods and services.