Define or Explain the following concept: 2) Aggregate Demand

Define or Explain the following concept:

2) Aggregate Demand

Answer: Aggregate demand: Aggregate demand implies the total demand for final goods and services by various individuals in all the sectors in an economy. It expresses the total demand in terms of money. In this manner, it can be defined as the actual aggregate expenditure incurred by all the people in an economy on different goods and services.

AD = C + I + G + (X – M)

Where,

Demand by households - Private consumption expenditure (C)

Demand by firms - Private investment expenditure (I)

Demand by government - Government expenditure (G)

Demand by foreign sector- Net exports (XM)




Where, X is exports and M is imports.

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