WHAT IS AN AGGREGATE DEMAND?

Aggregate demand price is the amount which entrepreneurs excepts to receive from the sale of output at a particular level of employment.

In simple words, aggregate demand is the total demand for final goods and services in an economy.

There are three different components of aggregate demand:

1) Consumption expenditure: consumption expenditure includes the spending of normal citizens on goods and services in a country.

2) Investment expenditures: investment expenditures are incurred by businesses on new investments which increases production capacity.

3) Government expenditure: Aggregate demand includes expenditures of government. Government is one of the biggest spenders in an economy. The government spends on infrastructure, defence, judiciary, etc.

Mathematically aggregate demand is written as,

AD= C+I+G

DIAGRAM:

 

EXPLANATION:

1) Aggregate demand curve upwards from left to right.

2) As Aggregate demand price increases the level of employment increases.

3) However, Aggregate demand increases at a diminishing rate.