Question

Aggregate expenditure in the economy during an accounting year is also known as ................
(Choose the correct option to fill in the blank)

• A. Autonomous investment
• B. Aggregate supply
• C. Aggregate demand
• D. Induced investment

Hint:

Aggregate expenditure and aggregate demand mean the same in macroeconomics — the total planned spending on final goods and services during a year. Remember: AD includes consumption, investment, government spending, and net exports.

Answer 1

The Correct Option is C

Aggregate expenditure represents the total spending on goods and services within an economy during a specific year. This total planned expenditure is also known as Aggregate Demand (AD) in macroeconomics. \[\text{Aggregate Demand (AD)} = C + I + G + (X - M)\] Where:
\( C \) = Private Final Consumption Expenditure
\( I \) = Investment Expenditure (Autonomous + Induced)
\( G \) = Government Final Consumption Expenditure
\( X - M \) = Net Exports (Exports minus Imports)
Aggregate demand reflects the total demand for goods and services at a specific price level within an economy. It indicates the spending intentions of households, firms, the government, and foreign entities. Let's examine the alternatives:
Autonomous investment (A): Investment independent of income or output.
Aggregate supply (B): Total output produced in the economy, not total expenditure.
Induced investment (D): Investment dependent on the income level; however, it only constitutes a portion of aggregate demand.
Therefore, the concept of Aggregate Demand most accurately and comprehensively describes aggregate expenditure.