Question

Why is the aggregate demand curve NOT the sum of all market demand curves in the economy?

A) Because it only considers consumer demand
B) Because it includes only government spending
C) Because it doesn't account for changes in prices
D) Because it considers all components of spending in the economy

Answer 1

The aggregate demand curve is not the sum of all market demand curves in the economy because it considers all components of spending in the economy, not just consumer demand or government spending.

Step-by-step explanation:

The aggregate demand curve is NOT the sum of all market demand curves in the economy because it considers all components of spending in the economy, not just consumer demand or government spending. The aggregate demand curve takes into account consumption spending (C), investment spending (I), government spending (G), and spending on exports (X) minus imports (M), which together make up the total spending in the economy.

For example, if the price level increases, it will affect the different components of aggregate demand differently. Higher prices may reduce consumer spending (C) and investment spending (I), leading to a decrease in total spending.

Therefore, option D is correct: the aggregate demand curve considers all components of spending in the economy, and is not simply the sum of individual market demand curves.