Question

List the components of aggregate demand in a two-sector economy.

Hint:

In a two-sector economy, there are only two components of aggregate demand: consumption and investment.

Answer 1

Step 1: Define Aggregate Demand.
Aggregate demand refers to the total demand for goods and services in an economy at a given overall price level and in a given period.
Step 2: Components of Aggregate Demand in a Two-Sector Economy.
In a two-sector economy, the components of aggregate demand are:

• Consumption (C): The total spending by households on goods and services.
• Investment (I): The total spending by firms on capital goods such as machinery, factories, and equipment.

Step 3: Conclusion.
In a two-sector economy, aggregate demand is simply the sum of consumption and investment: \[ AD = C + I \]