what is aggregate demand 
aggregate demand is a measurement of the total amount of demand for all finished goods and services produced in an economy aggregate demand is commonly expressed as the total amount of money exchanged for those goods and services at a specific price level and point in time investopedia ellen lindnerunderstanding aggregate demandaggregate demand is a macroeconomic term and can be compared with the gross domestic product gdp gdp represents the total amount of goods and services produced in an economy while aggregate demand is the demand or desire for those goods aggregate demand and gdp commonly increase or decrease together aggregate demand equals gdp only in the long run after adjusting for the price level short run aggregate demand measures total output for a single nominal price level without adjusting for inflation other variations in calculations can occur depending on the methodologies used and the various components aggregate demand consists of all consumer goods capital goods exports imports and government spending programs all variables are considered equal if they trade at the same market value individual or simple demand is not aggregated or combined but describes the desire for a single producer s product or service while aggregate demand helps determine the overall strength of consumers and businesses in an economy it does have limits since aggregate demand is measured by market values it only represents total output at a given price level and does not necessarily represent the quality of life or standard of living in a society aggregate demand componentsaggregate demand is determined by the overall collective spending on products and services by all economic sectors on the procurement of goods and services by four components consumer spending represents the demand by individuals and households within the economy while there are several factors in determining consumer demand the most important is consumer incomes and the level of taxation investment spending represents businesses investment to support current output and increase production capability it may include spending on new capital assets such as equipment facilities and raw materials government spending represents the demand produced by government programs such as infrastructure spending and public goods this does not include services such as medicare or social security because these programs simply transfer demand from one group to another net exports represent the demand for foreign goods as well as the foreign demand for domestic goods it is calculated by subtracting the total value of a country s exports from the total value of all imports aggregate demand formulathe equation for aggregate demand adds the amount of consumer spending investment spending government spending and the net of exports and imports the formula is shown as follows aggregate demand c i g nx where c consumer spending on goods and services i private investment and corporate spending on non final capital goods factories equipment etc g government spending on public goods and social services infrastructure medicare etc nx net exports exports minus imports begin aligned text aggregate demand text c text i text g text nx textbf where text c text consumer spending on goods and services text i text private investment and corporate spending on text non final capital goods factories equipment etc text g text government spending on public goods and social text services infrastructure medicare etc text nx text net exports exports minus imports end aligned aggregate demand c i g nxwhere c consumer spending on goods and servicesi private investment and corporate spending onnon final capital goods factories equipment etc g government spending on public goods and socialservices infrastructure medicare etc nx net exports exports minus imports the aggregate demand formula above is also used by the bureau of economic analysis to measure gdp in the u s 1like most typical demand curves it slopes downward from left to right with goods and services on the horizontal x axis and the overall price level of the basket of goods and services on the vertical y axis demand increases or decreases along the curve as prices for goods and services either increase or decrease 