One way to derive aggregate demand is by looking at its four component parts, which are:

Question

BlackTom AI · Accepted Answer

Aggregate demand equals the total planned spending on final goods and services: AD = C + Iplanned + G + NX (where NX = exports − imports). This identity captures the four components economists use to derive the aggregate demand curve.

Relevant knowledge points:
- C (consumer expenditures) is household spending on goods and services.
- Iplanned (planned investment spending) is business spending intended on capital goods and inventory accumulation; AD uses planned rather than actual because AD represents intended spending decisions.
- G (government spending) is purchases of goods and services by government.
- NX (net exports) is exports minus imports; AD includes net exports because imports are leakages from domestic demand and must be subtracted.

Step-by-step reasoning:
1. Start from the standard national expenditure approach to GDP/demand: aggregate demand (planned spending) is the sum of consumption, planned investment, government purchases, and net exports.
2. Compare each multiple-choice option to this identity:
   - Option b lists consumer expenditures (C), planned investment (Iplanned), government spending (G), and net exports (NX) — exactly matching AD = C + Iplanned + G + NX.
3. Because AD measures domestic output demanded, we subtract imports from exports, yielding net exports rather than counting only gross exports.
4. Planned investment is used because aggregate demand reflects intended purchases; actual investment may include unintended inventory changes and thus does not reflect planned aggregate demand.

Why the correct answer is correct:
Option b precisely matches the standard components of aggregate demand: C, Iplanned, G, and NX. It uses planned investment and net exports, which are the correct theoretical elements.

Why the other options are incorrect:
- Option a (gross exports) fails to subtract imports, so it misstates foreign sector contribution.
- Option c (taxes) lists taxes instead of net exports; taxes are not a component of aggregate demand (they affect disposable income and thus C, but are not a component).
- Option d (actual investment) substitutes actual for planned investment; actual investment can include unplanned inventory changes and does not represent intended spending in the AD framework.

Conclusion: The correct answer is b. consumer expenditures, planned investment spending, government spending, and net exports.

One way to derive aggregate demand is by looking at its four component parts, which are:Single choice

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