What is aggregate demand? State its components.
OR

Explain how controlling the money supply is helpful in reducing excess demand.

Question

What is aggregate demand? State its components.ORExplain how controlling the money supply is helpful in reducing excess demand.

Philoid · Accepted Answer

The value of final goods and services which all the sectors in an economy are planning to buy in a year is called the aggregate demand.

It has 4 components, namely:

a)Private final consumption expenditure

b) Government final consumption expenditure

c) Investment expenditure

d) Net exports

OR

Controlling the money is helpful to reduce the excess demand in the following ways:

● With the reduction in money supply, the amount of money left with people to make purchases of goods and services will reduce.

● This will reduce aggregate demand.

● Thus, the excess demand would be wiped out.