Question

Give reasons "Investment demand is not the sole determinant of aggregate demand".

Answer 1

investment demand is not the sole determinant of aggregate demand. Apart from investment demand, consumption demand, govt. demand, exports and imports r also the components of aggregate demand.

Answer 2

Investment demand is not the only determinant of an aggregate demand as it includes the government demand, consumption demand, exports and imports apart from the investment demand.

• Investment demand is represented as -

AD = Con + I + G + (X – M)

Where,

Demand by households is represented as private consumption expenditure (C)

Demand by firms is represented as private investment expenditure (I)

Demand by government  is represented as the government expenditure (G)

Demand by foreign sector is represented as net exports (X – M)

Where, X are the exports and M are the imports.