Aggregate Demand. Aggregate demand (AD) is the total amount of expenditure on goods and services in an economy.
AD = C + I + G + (X – M)
- Consumption (C). Consumption is total consumer expenditure on durable goods (electronics), non-durable goods (food) and services (banking).
- Investment (I). Investment is total investment by firms on buildings, machinery and the change in inventories.
- Government Expenditure (G). Government expenditure is total expenditure by the government on goods and services.
- Net Exports (X-M). Exports are domestic goods and services sold to foreign agents. Imports are foreign goods and services bought by domestic agents. Net exports are exports minus imports.