In macroeconomics, aggregate demand (AD) is the total demand for final goods and services in the economy (Y) at a given time and price level. It is the amount of goods and services in the economy that will be purchased at all possible price levels. This is the demand for the gross domestic product of a country when inventory levels are static. It is often called effective demand, though at other times this term is distinguished.
Components of Aggregate Demand
Aggregate Demand is the total demand in the economy. AD = C + I + G + (X-M) * C= Consumer spending (Household consumption) * I = Investment (gross fixed capital formation) * G= Government spending (Government investment and Government consumption) * X-M = Net Exports.
Components of Aggregate demand
A graph showing components of AD as a %
In the above charts, I left out 2 minor factors NPISH and change in inventories to make it simpler.
TABLE 3 – UK GDP | COMPONENTS OF DEMAND – £bn, 2006 prices | | Final consumptionexpenditure | | Change ininventories | | | | | | | | | | | | HH | NPISH1 | Government | GFCF2 | | Exports3 | Imports3 | Real GDP4 | | ABJR | HAYO | NMRY | NPQT | CAFU | IKBK | IKBL | ABMI | 2007 | 890.9 | 36.6 | 310.6 | 253.6 | 7.8 | 417.5 | 467.6 | 1449.9 | 2008 | 878.0 | 35.8 | 315.6 | 241.4 | 1.7 | 422.9 | 462.0 | 1433.9 | 2009 | 847.0 | 34.5 | 315.4 | 209.1 | -12.5 | 382.9 | 405.5 | 1371.2 |