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 refers to the total amount of spending in the economy on goods and services during a particular accounting year. In macroeconomics, this total planned expenditure is also referred to as Aggregate Demand (AD). \[ \text{Aggregate Demand (AD)} = C + I + G + (X - M) \] 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 represents the total demand for goods and services at a given price level in an economy. It shows how much households, firms, government, and foreign buyers are willing to spend. Let's analyze the other options:
Autonomous investment (A): Refers to investment that does not depend on income or output.
Aggregate supply (B): Refers to the total output produced in the economy, not total expenditure.
Induced investment (D): Is the investment that depends on income level, but it is only a part of aggregate demand.
Hence, aggregate expenditure is most accurately and completely captured by the concept of Aggregate Demand.