Aggregate Demand

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Definition: Aggregate Demand

In macroeconomic terms, aggregate demand is the sum total of all the goods and services demanded at a given time period and a fixed price level in an economy.

It is also commonly referred to as the total demand for a country’s GDP.

Generally, an aggregate demand curve is drawn as price v/s aggregate demand which is a downward sloping curve as the aggregate demand increases due to the decrease in prices primarily due to a combination of three effects viz. Wealth effect, interest rate effect and the exchange rate effect.

Mathematically, it can be expressed as a sum of the 4 main components of demand.

Aggregate demand = C + I + G + NX


C= Consumption Expenditure

I= Investment Expenditure

G= Government Spending

NX= Net Exports = Export- Import


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