Aggregate Demand

Aggregate demand is the total demand for goods and services within an economy.

Contrary to Demand - which measures one good - Aggregate demand measures the demand for all the goods and services within an economy

Components of AD = C+I+G+(X-M)

C = consumer spending - demand from households (eg. new shoes, car etc.)

I = investment - demand from firms (capital goods) (eg. machinery, tech)

G = government spending - demand from government (eg. schools, healthcare)

X = exports = in the UK top exports include: financial services, fighter jets and medicines - these are sold to foreign consumers

M = imports

In the UK the average percentage of these is:

C = 60%

I = 14%

G = 25%

(X-M) = 1%

Extensions and contractions in AD:

When prices increases real GDP reduces = contraction in AD

When prices decrease real GDP increase = extension in AD