Aggregate demand is total planned spending on domestic goods. What are its four components?

• A. Consumption, Savings, Government Revenue, Exports.
• B. Investment, Taxes, Transfers, Imports.
• C. Consumption, Investment, Government Spending, Net Exports.
• D. Consumption, Investment, Imports, Government Debt.

Answer: (C)

Aggregate demand is the total planned spending on domestically produced goods and services, and it comes from four sources: consumption, investment, government spending, and net exports. Consumption is the spending by households on goods and services. Investment covers firms’ expenditures on capital goods and changes in inventories. Government spending is the government's expenditures on goods and services. Net exports equals exports minus imports; exports add to domestic demand because they are foreigners buying domestically produced goods, while imports subtract because spending on foreign goods reduces demand for domestic goods. Altogether, AD = C + I + G + NX. The other options mix in items like savings, taxes, transfers, or debt, which aren’t direct components of aggregate demand.