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Aggregate demand (DOC)

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					Aggregate demand

In macroeconomics, aggregate demand is the total demand for final goods
and services in the economy (Y) at a given time and price level. It is
the amount of goods and services in the economy that will be purchased at
all possible price levels. This is the demand for the gross domestic
product of a country when inventory levels are static. It is often called
effective demand or abbreviated as 'AD'. In a general aggregate supply-
demand chart, the aggregate demand curve (AD) slopes downward (indicating
that higher outputs are demanded at lower price levels).

Components

An aggregate demand curve is the sum of individual demand curves for
different sectors of the economy. The aggregate demand is usually
described as a linear sum of four separable demand sources.

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

where

    *   C \ is consumption = ac + bc*(Y - T),
    *   I \ is Investment,
    *   G \ is Government spending,
    *   NX = X - M \ is Net export,
             X \ is total exports, and
            M \ is total imports = am + bm*(Y - T)

				
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posted:2/8/2010
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