Aggregate Demand (AD)

Aggregate Demand is the value of total expenditure on all goods and service in an economy during a fiscal year. Aggregate demand of the economy depends upon the level of employment. There is direct or positive relationship between the level of employment or output in the economy and the aggregate demand. It signifies that aggregate expenditure will increase with rise in the level of employment and fall with the decline in the level of employment. Aggregate demand is the summation of consumption and investment.

Aggregate Demand (AD) = C + l

 

 

Where,              C = Consumption expenditure              l = Investment

 

An imaginary schedule showing aggregate demand;

 

Income (Y)	C	I	Aggregate Demand(C+I)
0 200 400 600 800 1000	100 200 300 400 500 600	100 100 100 100 100 100	200 300 400 500 600 700

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