Within an economic model lacking external trade and government intervention, aggregate demand is calculated as the total of ?
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Answer: C. personal consumption and private investment
Explanation
In a closed economy without government, all output is either consumed or invested privately. Aggregate demand is the sum of all planned expenditures by households and business firms. Therefore, the total demand equals the sum of personal consumption and private investment spending. Aggregate demand represents the total quantity of goods and services demanded in an economy. A closed economy does not engage in international trade with other foreign sovereign nations. Investment refers to spending on capital goods like machinery, equipment, and new building construction.
This basic model helps economists understand the fundamental drivers of economic activity and growth. It matters because it provides a foundation for more complex models including government spending. Analyzing these components allows policymakers to identify the sources of fluctuations in national output. Personal saving is not a component of aggregate demand because it represents income withheld. Personal saving is not part of total spending, as it is a leak from. None of the above is incorrect because consumption and investment are the correct components.
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