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Aggregate demand

Aggregate demand Definition

In economics, aggregate demand is the total demand for goods and services in the economy during a specific time period. It is often called effective demand. Put another way, it is the demand for the gross domestic product of a country (the total new production sold through the market). This demand consists of four major parts, which can be stated either in either nominal or "real" terms:

  • personal consumption expenditures (C) or "consumption," demand by households and unattached individuals; its determination is described by the consumption function.
  • gross private domestic investment (I), demand by business firms and some individuals, for new factories, machinery, computer software, housing, other structures, and inventories.
  • gross government investment and consumption expenditures (G).
  • net exports (NX), i.e., net demand by the rest of the world for the country's output.



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