Reference no: EM132275734

The general idea behind the Keynesian approach is that natural forces cause our production/output/national income of goods and services (Aggregate supply) to match the aggregate demand for goods and services. The match point is called the equilibrium, this idea is very similar to the functioning of supply and demand framework in a market. Keynes views the aggregate demand as four major components, demand by consumers (food, toys, etc), demand by businesses (factories, machines delivery trucks etc), demand by government (military stuff, building roads, etc) and the demand by foreigners (our exports less imports). Details of these components are well explained in the circular flow model; Keynesian economic policy is based on shifting this aggregate demand and/or aggregate supply. In macroeconomics we talk about the various properties of these components (Consumption, Gross Investment, Government Purchases of Goods and Services and Net-Exports).

What are the properties of the components of Aggregate Demand? (Discuss one component at a time)