ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -According to Keynesian economists, the private-sector components of aggregate demand are too variable and too dependent on psychological and emotional factors to maintain sustained growth in the economy.

Detailed explanation-2: -Summary. Aggregate demand is the sum of four components: consumption, investment, government spending, and net exports. Consumption can change for a number of reasons, including movements in income, taxes, expectations about future income, and changes in wealth levels.

Detailed explanation-3: -The main plank of Keynes’s theory, which has come to bear his name, is the assertion that aggregate demand-measured as the sum of spending by households, businesses, and the government-is the most important driving force in an economy.

Detailed explanation-4: -In a two sector economy, the aggregate demand (C+ I) refers to the total spending in the economy i.e. it is the sum of demand for the consumer goods (C) and investment goods (I) by households and firms respectively.

Detailed explanation-5: -A Keynesian economist might point out that GDP only equals aggregate demand in long-run equilibrium. Short-run aggregate demand measures total output for a single nominal price level (not necessarily equilibrium). In most macroeconomic models, however, the price level is assumed to be equal to “one” for simplicity.