The total demand for goods and services in an economy is known as ___?

A. National Demand
B. Aggregate Demand
C. Gross National Product
D. Economy Wide Demand

Answer

Correct Answer: B. Aggregate Demand

Detail about MCQs

The total demand for goods and services in an economy is known as Aggregate Demand (Option B). Aggregate Demand represents the total quantity of goods and services that all sectors of an economy (consumers, businesses, government, and foreign buyers) are willing to buy at a given overall price level and in a given period.

It is usually expressed as the sum of four components:

  1. Consumption (C): The total spending by households on goods and services.
  2. Investment (I): The spending on capital goods and structures by businesses and the purchase of new homes.
  3. Government Spending (G): The total spending by the government on goods and services.
  4. Net Exports (Exports – Imports): The value of a country’s exports minus its imports.

Mathematically, Aggregate Demand is represented as:

where:

  • is consumption,
  • is investment,
  • is government spending,
  • is exports, and
  • is imports.

Understanding Aggregate Demand is crucial in macroeconomics as it helps analyze the overall economic activity and guides policymakers in making decisions related to monetary and fiscal policies to achieve macroeconomic goals like price stability, full employment, and economic growth.

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