Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the ACCA Certification Exam. Master concepts with flashcards and multiple-choice questions, each with explanations and hints. Get exam ready today!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What is the formula for calculating aggregate demand?

AD = C + I + G + (X-M)
AD = C + I + S + T
AD = C + S + I + Q
AD = C + T + G + I

The correct answer is: AD = C + I + G + (X-M)

The formula for calculating aggregate demand is represented by the equation AD = C + I + G + (X - M). In this equation, each variable represents a key component of overall demand within an economy. - C stands for consumption, which includes all private expenditures by households and non-profit institutions on goods and services. - I represents investment, which refers to business expenditures on physical capital, such as machinery and buildings, that are used to produce goods and services. - G is government spending, which encompasses all government outlays on public goods and services. - (X - M) accounts for net exports, with X standing for exports and M for imports. This part of the equation adjusts for the total demand by subtracting the value of imports from exports, therefore reflecting the net contribution of trade to the aggregate demand. This formula highlights how aggregate demand encompasses a wide range of spending activities within the economy, providing a comprehensive view of total demand for goods and services. In contrast, the other provided choices do not accurately represent the components involved in calculating aggregate demand or modify key elements inappropriately, which results in incorrect formulations.