The correct option is 1 only
Explanation
The distinction between "Domestic Demand for Goods" and "Demand for Domestic Goods" lies in the open economy identity.
1. Domestic Demand for Goods refers to the total spending by domestic residents (households, firms, and government), regardless of where the goods are produced. It is represented as C + I + G.
2. Demand for Domestic Goods refers to the demand for goods produced within the country's borders, regardless of who buys them (domestic residents or foreigners). It is represented as (C + I + G) - Imports + Exports.
Statement-wise Analysis:
- Statement 1 is Correct: In a closed economy, there are no exports or imports ($X = 0, M = 0$). Consequently, all domestic spending must be on domestically produced goods, and all domestic production is consumed domestically. Therefore, "Domestic Demand for Goods" and "Demand for Domestic Goods" are identical.
- Statement 2 is Incorrect: In an open economy, Domestic Demand for Goods ($C + I + G$) includes goods produced domestically as well as goods produced abroad (Imports). It does not exclude imports; rather, it represents the total absorption of goods by the domestic economy.
- Statement 3 is Incorrect: Demand for Domestic Goods represents the aggregate demand for the country's output. This includes the portion of domestic demand satisfied by local production ($C+I+G - \text{Imports}$) plus the foreign demand for domestic goods (Exports). Therefore, it explicitly includes exports.
Key Takeaway:
Domestic Demand is the total spending by residents (includes Imports, excludes Exports). Demand for Domestic Goods is the total demand for the country's production (excludes Imports, includes Exports).