Aggregate demand drives economic activity from "summary" of EBOOK: Macroeconomics by Rudiger Dornbusch,Stanley Fischer,Richard Startz
The level of economic activity in a country is determined by the total amount of goods and services that households, firms, and governments are willing to purchase. This total spending is known as aggregate demand. When aggregate demand increases, businesses see an opportunity to sell more goods and services, leading to higher levels of production and employment. In this way, aggregate demand plays a crucial role in driving economic activity. Aggregate demand is made up of four components: consumption, investment, government spending, and net exports. Consumption refers to the total amount spent by households on goods and services. When households are confident about their future income and are optimistic about the economy, they are more likely to spend money on consumer goods. This, in turn, stimulates economic activity. Investment, on the other hand, refers to the total amount spent by firms on capital goods such as machinery, equipment, and buildings. When firms ...
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