Aggregate Demand (AD) is the quantitative assessment of the requirement for all goods and services for a specific period of time at a given price level.

The co-relation between the price level and the demand is depicted by using the demand curve. It is observed that both the factors share a negative relationship which is also termed as “total spending”. It is understood that when the price level of a product or a service is high then naturally the demand for the same goes down and when the price level is low then the demand steadily increases.

The rightward shift of the curve indicates that at given price levels the demand of GDP (Gross Domestic Product) has increased. A shift to the left indicates the fact that at given price levels the demand has decreased.

Various components of Aggregate demand:

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

C = Money spent by the consumers to purchase the goods or

service I = Money spent by the companies on capital goods

G = Money spent by the Government to make the products available for the public

X = Total exports of goods and services

M = Total imports of goods and services.

Get more definitions about Aggregate demand and other ERP related terms here.


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