What are the key components of Aggregate Demand?

Aggregate demand is defined as the total level of goods and services in an economy at a given time.
The first components of aggregate demand is Consumption (C), which refers to the demand for durable and non durable goods, which are consumed. The next component is Investment (I), which is spending on capital goods, which may allow greater efficiencies in the future. An example may be a business spending on new buildings or equipment. Investment accounts for a small portion of GDP than Consumption. Next is Government spending (G), which is spending state provided goods and services. Transfer payments such as benefits are not included here. Lastly Net exports (X-M) is the final component. Exports refer to goods that are sold overseas and Imports refer to goods that are bought overseas. When net exports are positive there is a trade surplus and when net exports are negative there is a trade deficit.

Answered by Jaydon K. Economics tutor

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