Next video:
Loading the player...

Aggregate demand is a macroeconomic term describing the total demand in an economy for all goods and services at any given price level in a given time period.

As such, aggregate demand is the demand for the gross domestic product of a country.  

Aggregate Demand (AD) = C + I + G + (X-M)

In this formula C stands for total consumer expenditures on goods and services. I stands for the total investment spending by companies for capital goods such as factories, equipment and computers.  G stands for government expenditures for publicly provided goods and services such as roads, bridges and Medicare. X stands for exports and M stands for imports.  They are netted together to represent a country’s balance of trade.

If you were to represent aggregate demand graphically, the aggregate amount of goods and services demanded is represented on the horizontal X-axis, and the overall price level of the entire basket of goods and services is represented on the vertical Y-axis.

The aggregate demand curve, like most typical demand curves, slopes downward from left to right. Demand increases or decreases along the curve as prices for goods and services either increase or decrease. In addition, the curve can shift due to changes in the money supply, or increases and decreases in tax rates.

Related Articles
  1. Insights

    Law of Demand

    The law of demand is one of the most fundamental principles in microeconomics. It's all about how price affects demand. According to the law of demand, for all other things remaining constant, ...
  2. Investing

    What Is Supply?

    Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics.
  3. Trading

    Cost-Push Inflation Versus Demand-Pull Inflation

    Do you remember how much less you paid for things ten years ago? That’s inflation at work.
  4. Insights

    What Does Price Level Mean?

    Price level is the average of all current prices for goods and services in an economy.
  5. Insights

    What is Demand?

    Demand is the economic term for the cumulative wants and desires of consumers as they relate to a particular good or service. Generally speaking, if all other factors remain constant, as demand ...
  6. Insights

    Introduction To Supply And Demand

    Find out all about supply and demand and how it relates to your daily purchases.
  7. Tech

    Top Problems with Financial Data Aggregation

    A new front in personal finance technology—data aggregation—seeks to make our financial lives easier. But here's why it may be stalling.
  8. Insights

    Calculating Income Elasticity of Demand

    Income elasticity of demand is a measure of how consumer demand changes when income changes.
  9. Investing

    Understanding Term Structure of Interest Rates

    The term structure of interest rates is a common method of valuing bonds.
Hot Definitions
  1. Current Assets

    A balance sheet account that represents the value of all assets that can reasonably expected to be converted into cash within ...
  2. Tax Liability

    The total amount of tax that an entity is legally obligated to pay to an authority as the result of the occurrence of a taxable ...
  3. Preferred Stock

    A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares ...
  4. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  5. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  6. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
Trading Center